Money Back Guarantees: Should You Offer None, 30 Days, or 30 Years?

You may have heard that money-back guarantees are a good idea but you are not sure if they are right for your business?

Perhaps you are holding back because you are worried it’s going to cost you money handing out dozens of refunds, right?

Offering any kind of money back guarantee is better than offering none at all because the main two things that customers care about is:

  1. Price
  2. Risk

And a money back guarantee helps with both.

A money back guarantee reduces risk for the customer because:

  • It signals that you are confident about the quality of your product
  • It reduces their nervousness about making a bad purchasing decision
  • It goes beyond the normal offer of replacing the item if something goes wrong, because they can get their money back

A money back guarantee reduces the price for the customer because:

  • There is a cost for returning something for a refund: time. Knowing that you are able to get cash back for your trouble is better compensation than a replacement
  • Customers perception is: Price + money-back-guarantee = Free Trial. Free is a customers favourite price

These are all “up-front” factors that persuade a customer to buy in the first place. Which is great.

In fact, let’s just slap a number on it and say that offering a money back guarantee will generate 20% more sales for you.

But the real magic happens in the “tail-end”, a long time after the sale.

Let’s say you purchased the Ginsu 2000 never-needs-sharpening-can-cut-through-a-can knife with a 30 year money back guarantee.

And it’s year number 29 and you decide it’s crap. Do you ask for your money back? Hell no. For 4 reasons:

  1. You forgot about the 30 year money back guarantee anyway
  2. You can’t be bothered
  3. You feel you got your moneys worth any way
  4. You don’t want to impose or be a nuisance
  5. You’ve had it so long it feels like yours, you feel like the owner. This reduces the obligation of the people you bought it from

Yes, it’s an extreme example but you get the idea. Let’s look at another:

Let’s say you purchased an ebook about Search Engine Optimisation for $19 with a 3 month money back guarantee.

It’s the 2nd month, and you only just got around to reading it and you decide it’s crap. Do you ask for your money back? Hell no. For 3 reasons:

  1. You forgot about the 3 month money back guarantee anyway
  2. You can’t be bothered
  3. You don’t want to impose or be a nuisance
  4. It’s in your possession and so you feel like the owner. This reduces the obligation of the author

Let’s just slap a number on it and say that you get 5% of customers that actually do go ahead and ask for their money back.

So to summarise, you are getting 20% more sales to get out 5% refunds… Ummm, that’s really good isn’t it?

Yes. Yes it is.

4 Ways to Make A Great Money Back Guarantee:

  1. Make the expiry really really long. The longer it is the more chance of the customer forgetting about it, or feeling like they are imposing by asking for their money back
  2. If a customer asks for their money back, provide it the same day. Don’t drag your feet and make them wait. You will impress them with your customer service, and this experience may trigger Word-of-Mouth so you might get new sales from people they talk too!
  3. Tell them up-front how to get one eg “To get your money back, just call us on 0800 xyz xyz and you’ll have your money back within 24 hours”. You could just provide an email form for them to request their money-back, but in this case, I advise putting up a small barrier for them and getting them to talk directly to you
  4. Arrange their refund over the phone, and when it’s finished and approved, at the last minute ask them why they asked for one. Their feedback might be valuable. Don’t ask this question upfront because it will make them feel more uncomfortable than they already are

What about services?

Money back guarantees can also work for services but you’ll have to go overboard with your offer Eg “If you are not happy with our car washing service we’ll redo it for free + give your money back”

What do you think about money back guarantees now?

What do you have to add to this? Will you give it a try for your business? What’s the most outrageous money-back guarantee you’ve ever seen?

If You Don’t Like The Movie, Can You Get a Refund?

I get very nervous when I go to the movie theatre.

Not about the chance of soiling my pants with explosive diarrhea after eating too much from the all-you-can-eat Chinese smorgasbord from next door.

Not about the possibility of dropping my frozen coke onto my lap and leaving the theatre looking like I pissed my pants.

I’m nervous that the movie will be crap.

If so, I’ve wasted 2.5 hours of my life (including travel time), and more importantly, $24 hard earned dollars (2 tickets).

I did ask for a refund once (and I’ve been too scared to try again). It was for Sudden Death (1995) starring Jean-Claude Van Damme.

Right in the middle of the climax when the helicopter is falling in slow motion onto the ice hockey rink (sounds exciting? well, it wasn’t!), I got up, stormed back to the ticket window and demanded a refund.

“Sorry, we don’t give out refunds” she replied.

“I’m serious, the movie is crap-tacular, I just walked out during the climax, it really is terrible, I think I should get a refund!”

“Sorry, I can’t help you” she replied.

I stormed back to my seat in the cinema and very grumpily watched the epilogue.

The Movie Theater Business Is Dying, Maybe This Idea Could Save It?

We often hear about how movie piracy and illegal downloading is killing the profitability of the movie industry.  And certainly the ticket price is high (and bigger TV’s are more affordable and convenient), but maybe the movie theatres could change all that by offering a Money Back Guarantee?

Would you go to the movies more often? I would.

Would you get a refund sometimes? Sure.

But if they are getting your butt into the movie theater seats an extra 10 times a year, isn’t it a good investment?

Can you think of one other product or service that doesn’t offer a Money Back Guarantee?

I can’t.

How come we have let the movie theatres get away with it for so long?

If you have an awful restaurant meal do you have to pay? No.

If your plumber screws up your new toilet installation do you have to pay? No.

If your dentist gives you buck-teeth do you have to pay? No.

Sure, give them a chance to put things right before you take it to this extreme.  Same for the movies then.  Give me a voucher so I can come and see another movie.

Your Challenge, and Your Marketing Lesson

First, your challenge: I challenge you, the next time you fork out $25 of more for a crap movie theater experience, demand a refund.

It shouldn’t make any difference whether it is in the middle of the movie, or you waited until the closing credits to see if it would turn around in the closing minutes.  You probably won’t get it, but it’s your right to ask for it!

Second, your lesson: Offering a money-back guarantee is one of the oldest tricks in the book, but it works.  So do you offer one? Do you make a big deal about it? Perhaps you should.

2 reasons a Money Back Guarantee works:

  1. It reduces risk for the buyer
  2. Most people are too lazy to ask for it

Good article for more info about Money Back Guarantees

(One more thing: Why is the word guarantee so bloody hard to spell?)