The Money Back Guarantee

Thursday, December 14, 2006

If somebody buys your shareware, then later asks for a refund, should they get their money back? I think so. Not because it's the right thing to do, but because offering a money back guarantee is a good sales tool.

A lot of developers probably don't put much thought into this question until somebody asks for a refund. After all, it has nothing to do with creating a product and making a sale, it's about something that happens after all of that. But I don't think this is an accounting or customer support issue. It's about marketing.

Lots of businesses offer a money back guarantee. They don't do it because they're altruistic, they do it because it helps make the sale. Before a Mac user becomes your new customer they must overcome a list of mental hurdles: Can I afford it? Do I really need it? Is there a better option available? Will a better offer be available tomorrow? What if it doesn't work? This last one is generally a minor issue with shareware, since users can try the product before they buy. But a money back guarantee goes a long way towards calming many of these fears. It significantly reduces the risk of buying, and that's a very good thing when you're trying to sell something.

Why should you give a refund to somebody that has purchased your shareware product and wants to return it? After all, you've given him a license that you can't take back. You can't prevent him from using the software now. At least not the current version. And he did get a chance to evaluate it first.

You should do it because you don't want anybody saying anything bad about your product or service on their blog, at a user group meeting, on MacUpdate or Version Tracker, etc. If you give them a refund you'll quickly diffuse their anger, and they either won't bother to post the negative review, or they'll at least point out how great your customer service is. Of course, to avoid negative reviews you actually need to have a good product. But sometimes users have bad experiences even with good products, and the goal here is to make sure your customers feel like they're being taken care of. It may not be your fault that your product crashes when used on a flakey network, but fruitless to try to prove that to a frustrated user.

I think developers chose not to give refunds based on their fears of what might happen rather than any real experience. They're afraid that if they offer a money-back guarantee that a significant number of people will buy their program, get an activation code, then ask for a refund. But this hasn't been my experience. I've been selling software on the shareware model for over ten years now, although most of my products have been developer tools, not end user products. Out of the thousands of sales that I've made, I've had probably less than five people ask for refunds. But I'll admit, I've neglected to point this out on my current purchase pages. I need to point out my guarantee there.

So should you offer a 30-day money back guarantee? No, I think you should offer 90 days. If you offer 30 days (or less) then it sticks in the customer's mind that they need to make a decision as to whether to take advantage of the guarantee. If you offer 90 days they figure they have plenty of time, so they tend not to worry about it. The longer they wait before asking for a refund, the less likely they are to get around to asking for it. Especially if they can no longer easily get it through your payment processor, since they generally will only offer refunds for 30 days. The goal is not to make the process of getting a refund difficult, but to make their decision to ask for it less likely.

However, after issuing a refund you shouldn't rely on a person's honesty to keep them from using your software in the future. Although there's nothing you can do (without doing some really ugly phone-home scheme) to keep them from using the version they have, it's relatively easy to blacklist their number so it can't be used in future versions.

So, do I really think it's a good idea to offer a full refund? Go ahead, test me. Buy a copy of Safe Place or Foundation, keep it for a few months, and then ask me for a refund. I won't mind.

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