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We train people on various software through pre-recorded videos and have been contemplating offering a money back guarantee - just to reinforce that we are confident and stand behind our product.

We get individuals and corporate as our clients. We think our guarantee could be abused by individuals, so as of now we want to start with corporates (- given that they enroll at least 3 students for a particular course. )

Q1 - What do you think, should we go ahead, do you have any do's and dont's for us?

We use PayPal as our payment processor,

Q2 - how well you think it will go down with PayPal in case we start getting lots of refund requests?

(We have a good standing with them as of now and are on their preferred merchant rates plan.)

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I think it is a bad idea to offer a subset of your customers something that you don't offer to others. It sounds like a bad policy/plan with lots of headaches. Either do it or don't do it - don't have different rules for everyone. – TimJ♦ Mar 30 '11 at 14:03
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@Tim: Thanks for your views. We are not going to put it so explicitly, rather we"ll have one of the points in FAQs whereby we tell corporates , "contact us for the special offer if you're planning for 3 or more than 3 takers". (As we see from our analytics, our FAQs are read by at least 70% of the people who land on our sales page) Having said that, we're open for ideas- just thinking of possibilities. – Ankur Jain Mar 30 '11 at 14:15
It is still a really bad idea IMO. Either you stand by your money back offer or you do not. This could also backfire on you - you stand to lose more money from those who send more people... – TimJ♦ Mar 30 '11 at 14:33
@tim that might be a good second question "Is it ok for business to have a separate refund policy for different types of customers?" but not really the one he's asking right now. – Michael Pryor Mar 30 '11 at 14:52
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@Ankur - it seems you have already made up your mind - why are you asking here then? – TimJ♦ Mar 30 '11 at 16:00
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6 Answers

up vote 7 down vote

If you take credit cards for payment, you are effectively forced to offer refunds by the US Consumer Protection Act. It doesn't matter what country you live in (although most developed nations have similar laws). In the US, a credit card holder only needs to write a formal complain (typically they call their credit card account and complain, then sign a form sent to them) and you will be forced to refund their money.

The exact rules governing this are explained in US Federal Law, but unimportant- if the consumer wants to complain they can force a refund, except in very specialized situations. And note Paypal is notorious for bending over backward to protect the consumer.

So the whole point of this conversation is this- since Federal Laws effectively grant anyone at least 60 day refund period, why not turn this negative into a positive? Advertise that you offer 30 or a 60 day guarantee. You are already forced to do so if you take payment by credit card, so make it sound like you are offering something to your customers.

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What you said is true, however, consumer would be less encouraged to abuse if they had to go through the credit card company, fill forms, wait a week and explain why they want a refund. If you offer a money back guarantee "for the asking" on your website, without even involving the credit card company dispute mechanism - more abuse will occur. No business can protect itself 100% against scammers and abusers. The idea is to reduce the risk as much as possible. – ron M. Mar 30 '11 at 15:25
@ron M - Exactly what I would have said. – Ankur Jain Mar 30 '11 at 15:37
@ron, ankur - if you offer a valuable service and target good customers then you have no problem. If your service is not of good quality or you are not targeting the right users then you will see more refund requests. In that case it is your fault, not the customers - either you have not set expectations correctly or you are going to the bottom of the pool for customers - in either case you need to take a look at your business. – TimJ♦ Mar 30 '11 at 16:03
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Debating the law is pointless. Consumers can demand a refund from their credit card company. All they have to do is call their credit card company, then sign a form letter their company mails to them. You are much better off telling customers you have a guarantee (which is effectively forced on you by the credit card companies) rather than bemoaning people asking for refunds. Good products and good services don't have that many refund requests. – Gary E♦ Mar 30 '11 at 16:47
@Tim - It will really depend upon your market. You may target "good customers" but still end up with lots of refunds. IMers often use this term called serial-refunders. These people are good customers who consume your information. However they won't leave a chance for a refund if a marketer offers that as an option. – Ankur Jain Mar 30 '11 at 18:09
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up vote 3 down vote

Your question seems to be only "Does processing refunds harm your status as a merchant processor when using Paypal?"

The answer is no. Chargebacks are what harm your status as a processor and these are when the customer forces a refund on you, not when you supply a refund to the customer. However Paypal is notorious for being overly cautious when it comes to fraud and a HIGH number of refunds to charges could set off their fraud detector and have your account locked. I suspect your refund rate will still be very low compared to how many people purchase your product.

As an example, the Stack Overflow Careers site offers a 90 day money back guarantee for any reason and our return rate is rather low.

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Thanks for your answer. May be you got that idea because I squeezed in both the questions in subject. (Please feel free to edit the subject if you think it can be worded better.) I tried qualifying my question in detail inside my post though. When you say "HIGH" number of refunds, what is "HIGH" for payment processors? 10%, 20% or 50%? – Ankur Jain Mar 30 '11 at 15:56
Credit card processing and merchant account providers do not favor businesses with high return rates like rug stores. – JeffO Mar 30 '11 at 16:10
@Ankur I would consider high to be greater than 30%. In practice I haven't found Jeff's statement to be true. There doesn't seem to be any penalty for high chargebacks or returns (and vice versa, no benefit for low chargebacks or returns) until you cross some magic threshold and then your account is closed. – Michael Pryor Mar 30 '11 at 16:52
Thanks Michael that should help with my Q.#2 – Ankur Jain Mar 30 '11 at 17:22
up vote 2 down vote

I do believe this is a bad idea. Money back guarantee is usually given for more tangible items. If you aren't happy with the product, return it where returning it means "I can't use it anymore" for the client. But this is training, transfer of knowledge and nothing would stop a person from being "trained", and then returning what? new knowledge stored in his brain? medical science is still out on that...

I understand your need to prove your products' quality without risk to the client. If I were you I'd offer free sample training. Pick one subject and offer the training video free for anyone who registers. That should be enough for clients to decide whether your products meets their quality requirements.

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i agree with the free sample training. – vellad Mar 30 '11 at 15:11
Thanks ron. Nice suggestion. – Ankur Jain Mar 30 '11 at 17:29
up vote 2 down vote

We offer a 120-day money back guarantee and we provide it to everyone and make it obvious for everyone to see - we rarely ever have customers asking for a refund. We never had any issues with our payment processor and as Michael mentioned - it's chargebacks that would be an issue.

A money back guarantee is a way of getting more sales due to the risk-free purchase. If you really believe in your product I suggest doing it. If the money back guarantee increases your business by 100% and you get a 1% (should be less) asking for a refund then you're better of anyway.

There WILL be those that abuse it - but that's ok as on the whole you should be better off.

I believe the absolute majority of people (customers) are genuine and if they did get their value then they would be happy paying for it.

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Thanks vellad. You rarely have customers asking for refund - may be because the nature of product is quite different? You may be talking about software while here we are talking about software training through videos. In our case, once a person consumes our training it is gone and he longer needs it but that may not be the case with software. – Ankur Jain Mar 30 '11 at 15:45
up vote 2 down vote

I would agree with a lot of the comments mentioned about different customer terms for different types of customers, the challenge of

Documented Need

If I read into your question a little bit -- I believe there is a marketing goal of communicating your confidence in your quality product and to remove a barrier to closing large accounts. (Perhaps an opportunity for a little differentiation as well?) I think that this is a worthy marketing goal -- especially if it is backed up by real field data that prospective clients ask about the guarantees, and sales reports back that competitors are luring customers away by offering great guarantees.

Stand by Satisfaction

I would propose rather than stand behind the technical product -- stand behind customer satisfaction. Guarantee that the customer will be satisfied. Communicate a 100% Customer Satisfaction Gauranteed. Then you can frame the scope -- were you satisfied with the training that was delivered? I am sure this question is already part of your standard customer followup within your CRM process anyway. :)

Focus on resolution not on rebates

The focus should be on satisfaction. Before refunding the money-- strive to satisfy the customer. There will be a few that are so mad at what they got that they can not be satisfied-- but the majority will give you a second chance to do what it takes to make them satisfied.

Have a Clear Policy

Build into the policy how they alert you that there is a problem -- and that they have give you a reasonable chance to earn their satisfaction. Make it clear what the refund includes and what it doesn't. Make it a process so that scammers can't just call and say -- "I am not satisfied, can I have my money back?" Paying a lawyer $300 to do it will pay off in the long run. (I can't believe I just advocated paying a lawyer)

Now Market it

And then, back to your goal -- market it. Put it on your website. Put it on your promotional material. Integrate it to your sales pitches. Get a testimonial from a current customer that says "The satisfaction guarantee gave us the confidence to sign up and we are glad we did. . . " or something like that. Put out a press release announcing the strongest guaranteeing in the business. Post a YouTube video with a "reporter" interviewing you on why you are so confident in the product that you can offer a guarantee in an industry so plagued by dissatisfaction.

Have fun!

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You made some good points there. Thank You. Indeed customer service plays a major role. "I would propose rather than stand behind the technical product -- stand behind customer satisfaction." I think customer satisfaction would come into the picture after a sale is closed. – Ankur Jain Mar 30 '11 at 17:44
up vote 1 down vote

I think a money back guarantee is worth trying, both for corporate and individuals. My own feeling, and experience is a very small percentage will try to get one over. Certainly when I was offering an unconditional money back offer the rate of uptake was far lower than I had worried about, but for potential new customers it takes away another resistance to buy - would that outweigh a small percentage abusing?

Q1 - What do you think, should we go ahead, do you have any do's and dont's for us?

Depending on how you're selling your training - open access for monthly charge, or cost per video or course you might want to offer a refund or free other course/video.

Obviously you'd want some sensible constraints on refunds such as 14 days, or most recent purchased video/course only, as suits your model.

The thing with training is it's somewhat intangible "Learn Java in 24 hours" is rather unrealistic, despite many books in that vein, so long as expectations are set reasonably beforehand.

Why not trial it, perhaps on a new course, and see how it affects you?

Q2 - how well you think it will go down with PayPal in case we start getting lots of refund requests?

Even if you're issuing refunds it shouldn't be a problem with paypal as it's a transaction to them, rather than a card chargeback. It's a chargeback that would cause you problems.

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Thanks Matt. Ours is one time charge for 60 - 90 days access. Your's and Michael's answer has pretty much nailed Q2. So the consensus is that payment processors won't have any issue with refunds unless they go abnormally high. – Ankur Jain Mar 30 '11 at 17:49
Hmm, then some level of money back guarantee for a month .. "Use our training risk free for a month, we're sure you;ll see the benefit yada yada" offer gives reassurance and limits your exposure to someone defrauding you. – Matt Mar 30 '11 at 18:53

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