How a Liberal Refund Policy is Good for Your Business

Does it sound counterintuitive that being more permissive with refunds can make you more money? You might be surprised.

You’re right, it doesn’t make sense at face value. Playing fast and loose with your refund policy sounds like it’s going to cut into your profits. And it will… short term. That short term loss is an investment in your brand and your customer base though that can pay out in the end. So yes it sounds counterintuitive to give refunds more freely, but there’s method to the madness.

A liberal refund policy might cost more in the short run, but can be profitable in the long haul.

How is a liberal refund policy an investment in your business’ future?

There’s an old truism in business that runs along the lines of take care of your customers and the rest will follow. Not too many business owners would object to this. But does it apply to customers wanting refunds? Aren’t they just ex-customers anyway? Not always, and even when they are you could be losing money by treating them that way. Here’s the logic.

First off, what’s the advantage in strict refund policy?

The first thing that sails through most minds is going to be we’re giving away less money.  You’re not wrong. There’s an argument to be made that this is very short-sighted, though. What’s the real advantage of being tight about refunds?

  • You save money short term
  • You get to spend time arguing with your customers
  • Chargebacks are fun!
  • Negative reviews from disgruntled customers
  • Lots of complaining about you on social media
  • Drive away customers who may have returned later
  • Bad word of mouth, fewer referrals and recommendations

 

As you can see, there are many advantages to a strict refund policy! Am I out of my mind? No. But hopefully the satire helps drive the point home. Here’s the real list of advantages in a strict refund policy:

  • You save money short term

That’s it. And arguably that’s not even an advantage.

Now, here’s what you stand to gain from a liberal refund policy.

People prefer to do business with companies they can put some trust in. That trust only comes from a long process of building your brand and reputation as one deserving of your customers’ trust. A liberal refund policy facilitates almost every aspect of that process.

We’re about to take that list from above and flip it around. Here’s the advantages of a liberal refund policy:

  • Your brand builds a reputation for fairness and respect
  • You don’t waste time and energy haggling with upset customers
  • Positive reviews from former customers who believe they were treated fairly
  • Positive social media interactions and shout-outs
  • Some former customers will return when the time is right, knowing they can trust you
  • Former customers are far more likely to recommend you to friends

Keep in mind this isn’t going to be true of every refunded customer every time. But it will increase the incidence of all of these. And that’s exactly what you need to establish yourself as a brand that people can trust, and want to do business with. What happens from there? Your profits climb.

That $19.99 you just saved by not processing that refund could wind up costing you much, much more than that.

Hopefully what you’ve read above helps drive the point home. Build your brand on quality and mutual respect, not nickel and diming people who could be your advocates even though they’re no longer customers. An investment in your customers, even when they’re on their way out the door, is an investment in your brand and reputation.

Comments are below! What’s your experience been like with your current refund policy?

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