Feb 212012

Where’s My Money?

Deny Everything Photo by Eclectic Dyslexic on Flickr
Deny Everything Photo by Eclectic Dyslexic on Flickr

Strong guarantees and prompt refunds are customer service best business practices that protect both future cash flow and customers and assets. Guarantees and refund policies are not mutually exclusive. Offering a guarantee yet withholding a requested refund is a noxious combination that can leave a bad taste in the mouth of a customer as well as affect future income. Is it a risk worth taking?

Guarantee is a Badge of Honor

Slapping a big “G” on your treasure chest of goodies is a badge of honor to be worn proudly in the name of good customer service.

Guarantees can be made when

  • your product is great
  • your service is superb
  • you have nothing to hide
  • your customers are king

No guarantees are necessary when

  • the deal is so wonderful nobody will disagree
  • the product is so shabby nobody will ever buy it
  • the customer’s satisfaction doesn’t really matter

Nein! Nein! Nein!

“All Sales Are Final!”

“Your Refund Policy Sucks!”

Twice I’ve asked for a refund and the request was denied. In these two cases both were virtual products — server-side software used to run some type of online activity. Moreover,

  1. one product didn’t perform as anticipated, and
  2. the other product didn’t perform as advertised.

30 days money back guaranteeIn both instances, I deserved a refund. In the latter, I escalated the issue to the payment processing service and my credit card company.

Another commonality in both cases taught me a lesson I won’t ignore going forth. The products were provided by single developers who are not backed by big teams. What I suspect is they were cash-strapped and didn’t have access to resources the way a larger company would. That is understandable, but not excusable.

I emphatically support micro-business so this doesn’t mean I won’t continue to buy from them; however, I would point out to any budding small business or micro-business owner reading this that strong guarantees and liberal refund policies are all the more important to the long-term health of your business.

Customer Service Saves Customers

Now I’ve been on both sides of the fence as a small business owner and a customer. I take customer satisfaction serious, mine AND my customers.

Over the course of an internet lifetime, I’ve asked for (and received) refunds and I’ve given more than one customer a refund. Once, a customer of my webhosting service asked for a refund because it took me too long to set up his account. The service was new and only partially automated. That bit of manual labor cost me a long-term customer and a portion of what would have been recurring income. 1My comment on Surprise! A Lesson in Superior Customer Service, 9 July 2011. I often reference Adam Toporek’s IntenseFence blog because of his tight focus on “Customer Service Stories,” in which he relates anecdotals as well as gives excellent insight into the hows and whys of great customer service. This is also a good time for you to read his epic post Understanding Customer Lifetime Value: A Non-Geek’s Guide. You can bet I didn’t make that mistake again! (Automation is an equalizer, but we’ll save that wisdom for another article.)

Customer satisfaction is not to be trifled with.

Giving a customer a refund does not mean you lose a customer — it means you’ve satisfied that particular request.

Have you ever purchased a product at a store, was less than happy with it (or just had buyer’s remorse) and returned it to the store for a no-hassle refund? Did you ever visit that store again (and keep whatever you purchased)? Of course!

It happens all the time. So much so that some mega stores will give you a refund even if it is past the refund redemption period. They might not give you any cash back or return the money to your credit card, but rather than risk losing you as a long-term customer, they’ll give you a gift card with in-store credit.

Of course, sometimes you (or the mega store) might lose a customer if the person is a habitual freebie seeker. This is probably more the exception rather than the rule. While we don’t want to be the one mistaken for a freebie seeker, that isn’t enough disincentive to stop us from requesting a refund nor from receiving it when we ask.

Customer satisfaction is just that serious.

Prompt Refunds Protect Our Assets

Here’s what I think. I think that our customers are nice because they’re not worried. They’re not worried because we have a ridiculously liberal return policy: “We don’t want your money if you’re not amazingly happy.” . . . Customers know that they have nothing to fear. . . The no-questions-asked 90-day money back guarantee was one of the best decisions we ever made at Fog Creek. – Joel on Software

I’ve never heard anyone talk about refunds as a cash flow strategy or name them as part of business assets. But from a customer service point of view, prompt refunds protect your ability to maintain cash flow and help your business hold on to your most valuable asset: your customers.

You can tell from his quote above, Joel Spolsky of Joel on Software gets it! Part of his seventh assertion, Greed will get you nowhere 2Joel Spolsky, Seven steps to remarkable customer service, Joel on Software Blog, 19 February 2007. Accessed 20 February 2012., the quote captures the importance of using refunds as one of the measurements of customer satisfaction. The article is a timeless, priceless, evergreen must-read.

Microenterprises cannot afford to overlook this facet of customer service any more than larger small businesses or huge companies can.

Credibilty, Higher Conversions, and Risk Aversion?

The Editor at CompassDesigns.net mentions a few scholarly studies 3Editor, CompassDesigns.net, Do You Have A Refund Policy?, 24 May 2008. Accessed 20 February 2012. He references the Stanford University Credibility Study and a MindValley Labs article about risk reversal. that point up the need for a refund policy and make a strong case for that refund policy being liberal as opposed to stingy. Factoring in SEO and sales conversions, he rightfully links refunds (or lack thereof) to higher conversions and customers’ natural tendency to spot risks and run the other way.

Earlier I said we didn’t want to be falsely labeled as freebie seekers just because we’ve asked for a refund. But business writer Anna Johnson says that even if a “freebie seeker” requests a refund, you should ante up because it’s your credibility on the line, not their’s. 4Should You Give Freebie Seekers a Refund?, Anna Johnson, Kikabink News, 21 April 2010. Accessed 20 February 2011.

Let’s Not Go There

A final note: Online payment processors and credit card companies work hard to protect both sellers and buyers.

As a consumer of products and services online (and off), their hard work benefits you and me. Though sometimes these processors and their processes seem overly zealous, they can work in our favor. As a seller, payment processors protect us from fraudsters and scam artists. As a buyer, they are our final line of defense when a seller won’t issue a refund that has been requested.

When the process works well, we are grateful.

Does Your Refund Policy Suck?

What’s your refund policy? Has it ever been contested? Ever given or denied a customer a refund? Have you ever been denied a refund you requested?

Thanks for reading. Share your thoughts below.

Photo Credit: Deny Everything by Eclectic Dyslexic on Flickr

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Vernessa Taylor

Technology Consultant, Business Writer at Local Business Coach Online (LBCO)
Founder and editor of the blog here at LBCO. Thanks for reading, sharing, commenting and visiting. See you next time.

Footnotes   [ + ]

1. My comment on Surprise! A Lesson in Superior Customer Service, 9 July 2011. I often reference Adam Toporek’s IntenseFence blog because of his tight focus on “Customer Service Stories,” in which he relates anecdotals as well as gives excellent insight into the hows and whys of great customer service. This is also a good time for you to read his epic post Understanding Customer Lifetime Value: A Non-Geek’s Guide.
2. Joel Spolsky, Seven steps to remarkable customer service, Joel on Software Blog, 19 February 2007. Accessed 20 February 2012.
3. Editor, CompassDesigns.net, Do You Have A Refund Policy?, 24 May 2008. Accessed 20 February 2012. He references the Stanford University Credibility Study and a MindValley Labs article about risk reversal.
4. Should You Give Freebie Seekers a Refund?, Anna Johnson, Kikabink News, 21 April 2010. Accessed 20 February 2011.

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  21 Responses to “All Sales Are Final. (Your Refund Policy Sucks!)”

Comments (21)
  1. Hey Vernessa,

    Haven’t seen you in a while 😀 Good to see you back 😉

    Anyways, I am really sorry for your bad experiences.

    I too, have had an experience with product refund (I checked the FAQ, it is said that all sales were final). It was also part my fault (I usually check whether products have 30/45/60/90 days guarantee, but for this one, I didn’t.

    Anyways, thanks for sharing the post!

    Jeevan Jacob John

    • Hi Jeevan,

      So nice to see you here! I recently read several of your guest posts over on BasicBlogTips – you write quite a bit! LOL

      Truthfully, I can’t say I’ve had a lot of bad experiences with refunds. The two I’ve mentioned in this article bothered me because of the attitude of the sellers more than anything — their attitudes and less-than visible (or sensible) policies. Most business owners are sensible enough to both offer a reasonable policy and give a refund in a prompt manner.

      Thanks for coming by today! :)

      • Hey Vernessa,

        :) Yeah, I have been working on guest blogging a lot (I started a new blog, so need an uplift :D).

        Yes, of course. When you do business, it is important to place customer satisfaction above anything else.

        No problem, and thanks for the reply!

  2. Hi Vernessa,

    On the small business side, a lot depends on the type of business and the margins. For sure, if someone has a Guaranty, they absolutely should stand by it. That’s a no-brainer; however, I will say as a general statement, a reasonably liberal refund policy probably gets you more in customer satisfaction and retention than it costs (but not always).

    And you make a great point, because I always want to support small business, but with online transactions there can be such a risk of these types of issues that you’re sometimes safer going with a big brand.

    Great post and thanks for the shout out!

    • Hi Adam,

      I agree that the possibility exists for abuse of a liberal refund policy. I haven’t done any study of it but small businesses might be at risk when it comes to high-ticket items (or services) (and when their product is sub-par, which goes without saying). Barring shysters and scammers, and assuming a stringent fraud protection solution in place, those costs should be so low as to be negligible. (Of course, negligible costs are still costs!)

      As a refund doesn’t necessary portend the end of a relationship, small businesses would do well to apply some type of customer lifetime value metric to the situation which would inform their own thinking around “to refund” or “not to refund.” You covered a lot of territory in your epic CLV analysis; would refunds be a natural area to also consider?

  3. I’m feeling you here Vernessa. Maybe I haven’t had the problems with returning products, but you might remember my episode last year where I not only didn’t get paid for a very big commission but the company decided to drop me the same day saying I hadn’t made enough sales for them. You know I blasted them on the blog & through Twitter; very bad behavior, and I’ve never gone into the regular store again.

    • Hi Mitch,

      You know it is amazing how some companies will follow the (hopefully OLD) paradigm of the insurance industry: Deny! Deny! Deny! Affiliate companies operating through large advertising networks seem to notoriously follow that path. Is it because there is another layer between you and them? Probably!

      I read your series last year (it dovetailed nicely with my own series about bloggers and performance marketing). Sadly, this behavior is more prevalent than it should be. I’m glad you wrote about it. Not saying anything is what allows them hide from (what should be) their accountability.

      NOTE For those interested, here’s the link to Mitch’s article on the situation referenced above: Why Do I Have So Many Problems With Commission Junction Affiliates?

  4. I felt sad for you for experiencing those Vanessa. Thanks for sharing this experience. I’ve learned a lot especially in customer service guarantee.

    • Hi Jeremy – Every now and then things don’t work out as planned. In these cases, I was disappointed with the products but would likely have done business again with those businesses IF they acted like I was amongst their valued customers.

  5. I think that money back guarantee is a part of good customer service. I’m not saying it’s a profitable solutions (especially if your own a large business), but it’s just the way you maintain the community that has huge privileges – your customers.

    • Exactly! Your observation is especially true when a small business only has one product to sell. They never know when a member of that community will come back through the door and remember how they were treated last time they were there.

  6. I love how you put it that “Guarantee is a Badge of Honor.” It’s a shame most companies and SME today don’t know this or more specifically refuse to practice this form of professionalism.

  7. I am selling virtual good as well and I am dealing with refunds quite a bit and I have found that it’s better to give refund than trying to convince people as they can then leave a negative review and harm your business. I have experienced that customers leave positive review after they have asked for refund, they just rate customer support and how good it was.

    I have asked refunds only few times and so far I have got my money back all the time as I do a bit of research before I am buying anything, so I minimize risk to buy the wrong thing.

    • Hi Steven,

      Yes, like you I conduct quite a bit of research and when I can, I try before I buy. On occasion, what I buy is still not what I expected to get (or the product is significantly different than what I was led to believe). Still, I don’t always ask for a refund … chalk it up to human error.

      You make a good point about how something extremely positive can come from what seems like a negative. Getting a good rating for customer support (even after giving out a refund) is one of those “priceless” moments every small business would like to have more of.

  8. the article is really nice and what you said about the refund policy is really nice… and what i think is if he company is not sure about its products the it should improve its standards and should not go into this refunding policy… Nice post…

    • Hi Kunal,

      Your comment gets straight to the heart of the matter! Lack of confidence in one’s product has to be a major factor in not offering a guarantee that includes giving a refund if the customer truly isn’t satisfied. Thanks for sharing your thoughts. :)

  9. I think of two retailers on the opposite end of the spectrum that I love buying from because of their refund policy – Wal-Mart and Nordstroms.

    Both of these businesses teach their employees to make refunds as seamless as possible and I love giving them both money because of it.

    What I’m a huge fan of is seeing when someone throws down the “Lifetime Guarantee”. One company that I know of used this and led with it pointing out the fact that even your great grand kids could return this and they’d honor them with a full refund.

  10. Interesting post and well writen but in my opinion I really don’t think it matters about how good your refund policy is, as it is such a small percentage of people who would take it up in these days. Even if you offer a reward of some sort with another product, if they have to put there name somewhere to get it again only a very small percentage will go for it. People just don’t seem to care anymore, as long as they got what they asked for they are happy and providing it doesn’t costthe earth they would rather throw it away if it is broken than claim the refund.
    Paul Lester

    • Hi Paul,

      I do agree some would rather not bother with claiming a refund, especially when only small amounts are involved (myself included). But even if it is only a small percentage who might desire a refund, don’t you agree that such a policy should be in place? The point of a strong refund policy (that is part of a strong satisfaction guarantee) is customer retention. In my experience, a customer who is not happy with a product or service will continue to be a customer if their risk of buying from you is reduced to as close to zero as possible.

      Thanks for dropping by.

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