True Story: The Refund Policy Convinced Me

In 2002 I was interested in taking some classes on life and small business coaching and was trying to decide on a coaching school. If you know anything about the coaching profession, you probably know that there are tons of organizations out there offering training programs. I had narrowed down my list but it still felt overwhelming.

I ended up enrolling in Coachville's Graduate School of Coaching and one of the main reasons I chose Coachville was their straightforward money back guarantee:

"If you ever, for any reasons (even if you just changed your mind), you have a full year to ask for a refund, no questions asked."

The one time I asked for a refund because I couldn't attend a class I already enrolled in, Coachville quickly processed my refund, no questions asked. Just like they said.

The Real Reason to Offer a Money-back Guarantee

There is a certain amount of risk customers associate with buying most products and services. Sometimes, the risk is so minimal they're not even aware. For example, most people don't agonize over whether to buy Diet Pepsi or Diet Coke. 

When they're buying something expensive, something that requires an investment of time and energy to use, or something that exposes them to the judgments of others, risk awareness goes way up.

It's not just money. In fact sometimes money has little to do with perceived risk. These days when it seems like there's never enough time, customers hate to waste time and energy. And there is also Opportunity Cost. When your customer buys your product, they are betting that you will be the best solution. If you're not, they will be thinking about what they could have and should have done.

When prospects consider your purchase risky, they hesitate and wait for something to make them decide one way or another. Good money-back guarantees help your prospects get past this sticking point.

That's Nice But You Still Don't Offer a Guarantee

Maybe you know all this but you still don't offer a guaranteed refund.

The main reason business owners don't offer guarantees is the fear that so many customers will ask for refunds they'll go out of business.

Although I can't promise that this will never, ever happen to your business, there are several strategies to make sure your guarantee does its job: to encourage prospects to buy and keeping your business out of harm's way.

5 Strategies for Creating Win-win Guarantees

1. CONDITIONAL GUARANTEES

Coachville's guarantee was conditional; customers could get a full refund, no questions asked as long as they requested the refund within a year.

The key word here is fair.

For example, the conditional refund I offer for my More Referrals NOW teleclass is a full refund if participants aren't getting at least 50% more referrals. They become eligible for the refund 90 days after the last class.

Why 90 days? Because it takes time for enough people to become aware and interested that you begin getting results. If participants are consistently applying what they learn to their business, after 90-days they will start getting results.

Fair for participants; fair for me.

2. PRE-QUALIFY CUSTOMERS AND CLIENTS

I want everyone who takes my class to get results. I get no satisfaction taking someone's money if they don't.
 
For this reason, I have people who are interested in the class to complete an application. That way I make sure the people who participate are at the right stage in their business and have the mindset that makes them a good fit for the class.

And of course, customers who are likely to succeed are likely to get good results and unlikely to request a refund

3. MAKE IT SIMPLE

The beauty of Coachville's guarantee was its simplicity. There was one straightforward condition: the one year term.

No matter how generous your money back guarantee, the more strings you attach, the less attractive it will be. Even a whiff of difficulty and your refund program will be about as popular as a tax audit.

4. TELL THEM IF YOUR GUARANTEE IS GUTSY

If you're willing to offer a gutsy guarantee, make sure you talk about it in your marketing. An extraordinary guarantee can transform an otherwise, boring "me too" product or service, into something noteworthy. And if it's noteworthy, people will want to tell others thus creating great word of mouth.

5. ASK FOR CUSTOMER FEEDBACK REGULARLY

Most customers will not tell you they aren't satisfied with your product or service. Some will suffer quietly hoping things will improve. You won't know this until they send you an email requesting a refund.

Not to mention the negative word of mouth which might be even more damaging than the refund itself.

Don't let this happen. Make it a practice to ask your customers for honest feedback. Getting negative feedback doesn't feel good but it's a lot less painful than sending refunds and dealing with negative word of mouth.

Conclusion

A good money-back guarantee is good for your business because by reducing perceived purchase risk, prospects are far more likely to buy.

If you don't offer money-back guarantees because you're worried all your customers will want refunds, there are five strategies that will enable you to get the benefit of higher prospect to customer conversion AND lower your financial risk.

Before you say, "no" to guarantees, consider whether one or more of these strategies would work for you.

Talk Back

What kind of experience have you had with money-back guarantees? In your own business or with other companies that you do business with. Click here and comment.

This entry was posted on Thursday, November 1st, 2007 at 12:14 pm and is filed under Small Business Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.