We offer a 100% Money-Back Guarantee on all paid plans on the site. This encourages conversions by building trust and setting customers at ease. They know that if our software or support doesn’t work out for them, they can at least get a refund for the cost of membership.
Further, because we process refunds quickly and with understanding, a lot of our ex-customers leave with goodwill toward us, instead of resentment.
On the downside…
We do lose a bit of money every time we give someone a refund. As long as the percentage of customers getting refunds remains low, the increased conversions and other benefits outweigh the cost.
If your business model allows for refunds, it might be a good idea to offer a 100% no questions asked money-back guarantee just like we do.
Here’s the language we use on our pricing page for our money-back guarantee:
If within 30 days of purchase, you decide not to use our software and services, you may request a full refund. To obtain a refund, you will have to contact us, including the username, email address, and name on file for the account you wish to cancel. At that time, we will cancel your membership and refund any one-time payment made.
In reality, we’ll refund the money well after 30 days as long as it’s technically feasible (depends on the gateway). We ask for them to contact us with certain info to make sure we can find their membership to refund, but we don’t ask them any questions.
Process Refunds as Quickly as Possible and Move on with Business
We process refunds as soon as we get to them in our inbox.
Occasionally (like 1 out of 30 refunds), if we’ve been working with someone for a long time, and I suspect they’d rather have a few minutes of closer support vs. an actual refund, I’ll offer that first. But in general, our only reply to a refund request is to process the refund immediately and write back to them:
Your refund has been processed.
That’s it.
Post-Refund Action
Many people might suggest doing follow ups with customers who ask for refunds to learn what you might be able to change to keep them around, but I’m a proponent of spending your time and focus on customers willing to pay for your product vs the non-customers who aren’t willing to pay.
There may be insights to be gleaned from ex-customers, but I consider any feedback from someone who requested a refund suspect. Even if you say “you can request a refund for any reason”, it’s human nature for people to defend their decision by perhaps lying and saying “it isn’t working for me” instead of “I just want my money back”.
Rarely (again maybe 1 out of 30 refunds), a refund request will say something like “your product didn’t fit our use case“, and I will reply with “Your refund has been processed. If you have a moment, could you tell us what your use case is so we could consider it in the future?” I’m not looking to open up a larger conversation or spend too much time (or any extra time) on things. I’m just looking for a quick response like, “I need it to work with X” that we could chalk up as another vote for us to work on integration with X.
People Will Steal From You. Get Over It.
Similarly many will worry about users signing up, downloading premium content, and then requesting a refund… effectively stealing your content.
I think the record on our site for time from checkout to refund request is under five minutes. Many refunds come in almost exactly 30 days after checkout, probably because they set a reminder to ask for the refund.
The truth is if a refund wasn’t available, people inclined to steal your content would find some other way to steal your content. They would search on BitTorrent or unofficial sites. They would start a chargeback with their credit card company or try blackmailing you for a refund by email even if you don’t have a refund policy.
Again, focusing your time and effort on the customers who want to pay you will almost always be a better use of your time than battling against non-customers who don’t want to pay you. We sometimes end up spending time and money on customers who we’ll end up refunding, but we also avoid some chargebacks (which are more damaging) and blackmail attempts… saving us time and a little bit of our souls.
“Your refund has been processed.” Then move on with business.
Refund Rate Targets
We target a 10% refund rate. I forget where I came up with this number. I read it somewhere or heard it on a podcast, but I can’t find the source now. (If someone else knows of a source talking about this, let me know in the comments and I’ll share it here.)
In any case, 10% seems like a kind of natural rate of refunds. At 10% of sales, about half of all refunds will be of the “they were going to try to get their money back no matter what” variety. The other half will be of the “the product wasn’t actually going to work for them” variety. Of course, I’m hesitant to admit it, but a percentage of those refunds are also from customers that we just messed up with: we didn’t support them well, or left them hanging in some way. It happens.
If refunds are more than 10% of sales, that means there is a disconnect with our marketing and the product we are actually delivering. The product really isn’t working for a large percentage of people buying… or people just aren’t feeling like the value they are receiving is worth the price we’re charging. We might need to lower our price, but more likely we just need to make sure we aren’t over promising on our sales pages and in our marketing. For those of you struggling with high refund rates, I wrote up some tips to lower your refund rates here.
If refunds are less than 10% of sales, that means we’re not charging enough. We might be incredible at relating value to our customers, but we’re also probably just charging so little that many folks aren’t motivated to even ask for a refund. A low refund rate is a good indicator that you are under charging.
To get a sense of some real numbers, so far in 2016 we’ve had 834 sales and 84 refunds. Very close to our 10% target.
Summary
If I had to summarize the advice in this article, I’d lay it out like this.
- If possible, offer a no questions asked, 100% money-back guarantee.
- Allow refunds as long as technically possible. Typical periods are 30, 60, and 90 days.
- Process refunds as quickly as possible.
- Simply reply “Your refund has been processed.” and move on with business.
- If refunds are more than 10% of sales, consider lowering your prices, increasing your product’s value, or otherwise updating the expectations of your marketing to match the value of your products.
- If refunds are less than 10% of sales, consider raising your prices.