Why do you offer a refund policy? Is it because it’s The Right Thing to Do? If you work in customer service, chances are you’ve had a discussion that goes something like this:
You: We need an easy and simple refund policy.
Finance Director: How much is that going to cost us?
You: It’s not about the cost…it’s the right thing to do.
Finance Director: That sounds expensive.
It’s hard to argue with the keeper of the money, but it’s a worthy battle. Not only is a fair refund the right thing to do, but it also builds trust in your brand and makes customer interactions smoother and less combative. Writing a refund policy should be a win-win situation: Peace of mind for the customers, and more sales for you!
Here’re nine tips to write a customer-friendly return policy (and some examples to help convince that Finance Director of the value!)“As a business practice, it’s expensive. As advertising, it’s cheap.” - L.L. Bean Click To Tweet
The first step of writing a great refund policy is to stop thinking about returns solely as money lost. The return on investment is much more than just the lost value of products returned.
Perhaps one of the most famous return policies is L.L. Bean’s. Their unlimited, no questions asked policy attracts shoppers looking for high-quality clothing because customers know that they will always end up satisfied.
It’s a very forward-thinking policy – if their executives simply added up the cost of all the returned stock, it would likely seem a very expensive practice. However, the real benefit of an extensive return policy is the additional sales brought in by the publicity and brand perception.
Not only will a killer return policy bring in sales, interacting with customers returning products is an excellent opportunity to engage your customer further and earn their repeat business.
Of the 60% of online shoppers that make at least one return or exchange per year, 95% will make another purchase if the return experience is positive. Surprisingly, customers that have a poor experience and get good handling end up more loyal than they were in the first place. Hassling customers when they are trying to get a refund is more likely to prevent them from coming back or recommending you; than getting their money back. Chargebacks aren’t fun (or cheap) to deal with, and a fair refund policy can reduce them.
Jason Lemkin from SaaStr puts it even clearer for SaaS or recurring revenue apps:
“In the end, refunds don’t matter in SaaS – it’s all about recurring revenue. Once they cancel, they’re a write-off no matter the refund, unless you can get them back later (which you may) … so don’t sweat the small stuff here and treat people the way you’d want them to treat you. Maybe they’ll come back later.”
Start thinking about refunds in terms of the bigger picture, and you’re already halfway to a great policy.
Write refund policies in the same voice you use for the rest of your content. Just because it deals with money, it doesn’t mean you need to add in a bunch of legalese to make it sound official.
Phrases like Adhering to Policy, Under Any Circumstance, and Sole Discretion aren’t adding any legal validity to your return policy, but they are making customer’s heads spin.
When writing a return policy:
- Keep it simple
- Don’t use complicated legal jargon
- Maintain your brand voice
Hyphen Mattress, a trendy online mattress seller, sticks to their friendly brand voice throughout their return policy. Note their avoidance of complicated wording or limitations on the return.
I love the first point they make: if your customer is requesting a return, it means they bought something from you in the first place. And that’s something to celebrate!
63% of online shoppers check your refund policy before purchasing. A good refund policy influences purchase decisions, especially if customers aren’t 100% sure at the checkout. At the very least, include the return policy in your site’s main menu. If you have a particularly awesome return policy, advertise it proudly on your home page.
Some might be concerned that advertising a refund policy might encourage more customers to ask for their money back. But you’re looking at it the wrong way – you should be more concerned that customers are unhappy enough to want a refund. Focus on providing long-term value. The cost of a one month refund pales in comparison to a lifetime fan. Set your customer’s mind at ease and let them know you’ll keep their best interests at heart from the beginning.
If you do choose to offer refunds and credit, be super clear what constitutes a need for it. Basecamp does an excellent job communicating the situations for which they will consider a refund or credit. It’s exceptionally fair. If you don’t use Basecamp, or didn’t like using it – no problem. You’ll get your money back.
The average person doesn’t reconcile his or her credit card bills every month. If you’d dealt with billing support before, you’ve gotten a call from someone who’s been charged every month for a year and had no idea. Yes, it’s inconvenient – but if you didn’t provide them a service, do you really deserve their money?
Return periods are especially troublesome during the holidays. People often buy Christmas gifts early. Take this story about a woman who bought her father a train set through Groupon. She needed to exchange it to a defective power switch, but because she had purchased it early in December, the refund period had passed. It’s not practical to expect gift buyers to open and test their presents before giving them.
Financial leaders love time restrictions because it helps to forecast returns. Every month, there’s only so much revenue at risk from customers asking for a refund. With this in mind, see if you can work with them to find a different way to reduce a risk of refund. For example, reducing accidental signups after free trials. Reducing refunds to customers that actually deserve them isn’t the right move.
Most people don’t want to phone customer service to get a refund or a return arranged. In fact, 81% of customers try to help themselves before contacting you. Providing options for customers to arrange their own return or exchange saves them time, and it’s cheaper than staffing front line representatives to process the refund. It also reassures customers that they won’t need to jump through hoops or argue with agents to get their money back.
The biggest cause of customer disloyalty is a high-effort experience. A remarkable 96% of customers reporting high-effort experiences do not become repeat purchasers, compared with only 9% of those with low-effort experiences.
Not all refund situations are because a customer permanently wants to leave.
Maybe they …
- are away for a few months and are trying to keep costs down.
- need a different feature set that’s on your future roadmap.
- want a refund due to a service outage. Keeping cancellations and refunds a low effort experience keeps customers coming back in the future.
A return doesn’t always need to mean a full refund. Slack doesn’t offer refunds, but they do have alternatives for customers who might look for one. Offering alternatives is a great way to be cost efficient and make sure your customers stay happy.
Slack will automatically credit your account for any seats that you don’t use. It’s very fair, and it probably prevents a ton of refund requests from customers who might not have properly removed team members.
An exchange is better than store credit because your customers will have what they need. A store credit is better than a refund because it keeps the money locked to your store.
If you are offering alternatives other than a full refund, train your front line staff on when (and how) to offer each alternative. They’ll need to be proactive about reducing refund costs while still ensuring the customer is happy.
After you’ve put together a refund policy, it’s time for a gut check to make sure it makes sense for you. Buffer recently updated their refund policies after they noticed a big spike during a couple of months. You can read more about their story here. Essentially after cutting back on all returns they found that some restrictions just didn’t fit with the Buffer brand. In the end, they returned to being more generous with their refunds – just with a few more guidelines to make it easier for Happiness Heroes to make the right decision.
A refund policy isn’t set in stone; if you feel like trying something new, go for it! Make sure you’re tracking the amount and reasons for each refund so you can evaluate how it’s going at the end of the experiment. Do remember that if the policy does change, you’ll need to honor whatever you promised when a customer made their purchase.
Embrace the refund
Hopefully, we’ve given you enough examples and tips to create the perfect refund policy for your business. Doing the right thing might be expensive, but fair business practices are profitable. Embrace the refund as an inexpensive business practice to keep customers happy. It’s much cheaper than the alternative.