Ask HN: Did offering a money-back guarantee help your business?

We have a small low touch SaaS business with a 30 day money back guarantee, We've had maybe 3 people ask for there money back in the year of having it but it didn't affect conversions significantly

What seems like such a simple question unfortunately is probably quite difficult to answer. At best you could find someone who ran a high quality A-B test where the result showed something interesting. But you still have no idea whether that changed over time after the A-B test finished.

I think the main question is was the number of refund requests significant? If it was trivial then any marginal benefit is very low risk.

Patio11 has written quite a bit about his experience. Worth having a read of his blog if you haven't already.

https://www.kalzumeus.com/archive/

Yes. There are a few advantages to offering a money-back guarantee for your product. Especially for a one-time digital purchase:

- As you correctly assume, conversions will be higher with a money-back guarantee than without (although you do have to make it obvious that there is one in your marketing)

- More importantly, unhappy customers will get their money back either way. If you don't offer a refund, you'll just have customers making charge-backs via their credit card provider. These chargebacks are pretty much impossible to combat for digital products, and can cost you $15-$100+ on top of the refund per chargeback.

Even worse, too many chargebacks can lead to your payment processor freezing/closing your account.

Waaaay back in the day, when I was running my game development company [1], I put that on the website - an unconditional, no questions asked money back guarantee. As you said, nothing stopped customers from keeping the game. However, in 10 years or so selling games, only a handful of people ever asked; and I complied, of course.

Focus on the customers who _are_ willing to pay. Invest the time and energy you'd spend fighting pirates, fraudulent requests for returns (as defined in this post), etc, in making a better product.

I do have some really fun stories about antagonising the pirates - but do it as a hobby, not as part of your business strategy.

[1] http://mysterystudio.com

this is my money back guarantee for my workshops[1]

  >If you state after the workshop:
  >
  >that you care less about SEO now - and
  >that you learned nothing new - and
  >that your understanding of SEO has not been improved - and
  >that you have the feeling that you have wasted your time
  >then i will not take your money! I will even invite you for lunch that we can talk about why i failed you.
  >Note: that's a logic "and" (think &&, not an ||)

i never had to pay anything back and it takes some preasure out of the investment - if it's a private person wher the invested money matters. i got some positive feedback for it and it's another marketing opportunity.

for books sold over the internet there is a 14 days money back gurantee anyway in the EU, but nobody ever used it anyway [2]

[1] https://www.fullstackoptimization.com/workshop

[2] https://www.fullstackoptimization.com/b/understanding-seo

Yes. [0]

[0] https://www2.bc.edu/thomas-chemmanur/phdfincorp/MF891%20pape...

> "all sales are final"

If you take credit cards, no sale is final until the CC company finalizes settlements. The times for this can vary depending on card handler.

I know I use this to defend myself against unscrupulous or otherwise questionable merchants. But this can be easily turned to a bludgeoning weapon for customers to get their own way.

Anecdotally, I know over on reddit /r/ulpt "buying" and disputing or chargebacks are seen as getting free swag. Unethical in the extreme, but it works. The CC companies don't want to alienate customers from legit and bad transactions.

As a customer: if I am on the fence about a product, I will rarely buy anything that does not offer some kind of money-back guarantee, even if the cost is only 10 dollars. I've been burned before by buying products or services that turned out to be trash, and offering a guarantee shows some level of faith in what your company offers. I've only requested a refund a small handful of times.

Most recently I bought a $550 dollar online course and the 1 year unconditional money-back guarantee was 100% the deciding factor for me to try it. I ended up loving it and will not be requesting a refund.

I don't run this sort of business but I recall reading in a book (I believe Tim Ferris' 4 hour work week) that he offered a 110% money back guarantee and in the entire history of his business only one person took him up on it.

I've not seen the 110% money back guarantee in the wild however but it feels like a memorable offer. You'll have to carefully figure out how to avoid getting taken advantage of but I feel it might be a worthwhile risk.

I think, at least, that it will motivate you and put you in the bet mindset to please your customers.

I've often wondered which is better for a saas to offer...

Money-back guarantee for x days

-or-

x day Free Trial

...I would think the first would be easier to manage, but will the free trial pull more people in?

I was the CMO for a unicorn CPG[0], so slightly different take since we sold a physical product.

We went crazy with our money back guarantee. We had countless people whose 'dog' ate their product while still on the doorstep. One person said their cows ate $250 worth. Another person bought a few hundred dollars worth used from someone on a random forum. They all wanted a full refund. A newly hired email marketing coordinator mistakenly sent an offer for free product to 50,000 existing customers that was meant for a small group of new customers.

In every instance, we didn't think twice and gave them what they wanted. The outlier bad actors didn't make a dent when you looked at the entire business.

The philosophy that they were exploiting is what made us worth $1bn.

[0]https://www.inc.com/profile/quest-nutrition

Every marketing tool has it's place.

A guarantee is only useful if:

1. You need to lower perceived risk of using your product. 2. You need to demonstrate confidence in your product.

There are dozens of other conversion problems that won't be addressed by a money back guarantee.

As a consultant, offering a limited money-back guarantee was a huge boost to my business. I'd offer something like "if after 2 weeks, you don't like my work, we can cancel the contract and you don't have to pay anything."

By doing this I was able to charge literally twice as much – one of people's biggest concerns with a freelancer is that they have very little idea of how skilled you actually are. And no one ever asked for a refund.

(I was also pretty careful with my client selection though – I'd bring this up towards the very end of a negotiating phase, to avoid adverse selection.)

I think this comes in different flavours.

(1) Sales Channel Flavour. This is a guarantee you use to improve conversion rates, by trying to remove any reluctance possible. This is usually where you find the "hoops" to lower the number of actual claimants.

Generally, highly optimized sales "funnels" are found in segments with high margins & high advertising costs. A 5% return rate is no big deal if you spend 40% on media/advertising.

(2) Heirloom Product. Say you sell a $500 camping knife. It's designed to last generations. Besides marketing, a lifetime guarantee frames the product mission in nicely concrete terms, with natural feedback mechanisms. IE, guaranteeing the product for life helps ensure you make it to last a lifetie.

(3) Just-easier flavour. This is more common now, with amazon/yelp/charegbacks/etc. Money back might just be the easier way of dealing with unhappy customers. For a mature company easy=cheap. For a startup, easy means minimizing "escalations:" Chargeback disputes, Let me speak to your manager, etc.

You need to watch out for no. 3. It could be in the "do things that don't scale" category.

> I'm specifically concerned about one-time digital purchases, where once the customer has the file/valuable info there's nothing to stop them from keeping it and requesting a refund.

It's highly dependent on the product and who you're selling to. What are the specifics?

I have a subscription based Chrome extension [1] that will stop working if you refund. I offer 7 day refunds in place of my ability to offer free trials right now. I get minimal refund requests so it's not something I worry about and I'm not going to invest time in winning over people that don't see enough value in the product after seven days.

[1] https://www.checkbot.io/

I think so. I'm very happy with my return rate percentage.

My video courses (tech courses on programming / ops) are a one time purchase and I offer a 1 year money back return policy, no strings attached. The only reason I even put a time limit on it is because without putting one, then it's not clear on how returns work or would require too many words to describe a lifetime return policy.

I'm a developer myself and having a 30 day return policy for information seems like a high pressure bullshit tactic. People live busy lives and trying to force someone into watching a 10 hour course RIGHT NOW otherwise they can't get a refund later on feels dirty.

In other words, I optimize for the happy path. I want to focus on making the experience as good as it can be for people who are interested in learning whatever topic they signed up for and aren't the type of person who will buy it, consume it and then return it.

The dishonest person who will buy your stuff, consume it, and then ask for a refund will do that with a 5 day, 30 day or 365 day return policy. That's just the type of person they are.

We had a policy of "we only want satisfied customers". Being very forthcoming and easy-going with a return policy makes support super easy. When people complained, we pro-actively offered to reimburse them (sometimes they would even decline). This resulted in three things: It got rid of the cheapskates/difficult customers early on. It combatted negative reviews. It pleasantly surprised a few customers enough for them to put in free word of mouth or add positive reviews, sometimes adding up to 20 new customers. (The default is for customers to have to jump through hoops, excellent support can knock them off balance).

We started out with the guarantee and used it prominently in our marketing copy, so I don't have numbers on conversion rate improvement.

I am running SerpApi (https://serpapi.com).

We do offer money back guarantee, but no free trial. Yes, it does increase conversions but not in a significant way. It’s also an effective way to avoid chargebacks and keep poeple happy.

I've always promised a refund to any customers asking in good faith. I run a podcast hosting company, and not every solution out there is right for everyone.

Most users requesting a refund made a mistake. I'm happy to refund them or offer credit, and the reputation I've built for customer support is well worth the cost. It comes out to tens of dollars a month in exchange for priceless unsolicited recommendations on social media (even from former customers and folks who haven't used the service).

There have been a few bad actors. One user demanded a refund for six months of service (we bill monthly) after finding that the service did not meet his needs. He did not receive the refund that he demanded. Of the hundred or so refunds that I issue each year, maybe one or two are not what the customer asked for.

Don’t worry about a few bad apples taking advantage of a generous return policy. Keeping customers happy should be your primary concern, even those wanting a refund. They may even still leave you a good review afterwards! Plus, if someone’s unhappy and you don’t refund, they’ll just do a chargeback on their credit card which is much worse than a simple refund.

I'm gonna flip this on its head a bit; I've been that "bad actor" in the past, when I honest to god could not afford a course/book/whatever. Not "This will cut into my entertainment fund", more "I won't be able to pay rent if I pay for this".

I'm not in that position anymore, but a lot of my later purchases were based on what I learned while I was broke. Now I naturally default to O'Reilly books, for example, if I want a technical manual. Mostly because I downloaded a handful when I was in college.

If you're expecting your company to be around a while, there's a section of customers which will "abuse" your money-back guarantee, then later buy products from you legitimately, that wouldn't be accessible if you made it difficult to abuse the guarantee in the first place. And as many people have stated here, the "abuse" ends up being only a handful of people to begin with.

I work in customer service at a medium sized food company. We have a no questions asked guarantee. I'm somewhat torn on the money-back guarantee philosophy. I hear people say that it ends up being profitable at the end of the day. But, it entitles people to complain (and expect compensation) about every last little thing. I have customers that call and ask if one of our products is Gluten Free. Nowhere on the label have we stated that it is. Yet, they are beside themselves to hear that it is in fact not gluten free. I then have to either send them a refund or a replacement for their own negligence. I've had to do this for people who have bought our whole wheat flour, expecting it to be gluten free, because we're known as a company that sells some gluten free items. Rewarding this kind of behavior, while reinforcing the BS "customer is always right" philosophy, must be to the detriment of society. I wish that we (USA) would do away with our conception of customer service and would adjust to something more akin to what you find in Europe. No facade, just people interacting, for better and for worse.

I'm ranting now, I guess I say all this to say, I could see having an absolute guarantee being profitable in the long run, but as the person who has to deal with entitled whiny consumers, I absolutely hate it.

As a counterpoint to what is seems most people are saying, my friend had a mail order (and internet order eventually) business for 35 years, and they had a big sign on the wall of the sales floor that said,

"If you bought the wrong part, you now have a spare".

In other words, they never offered a refund, only replacement of the same product, and you had to send the old one back to prove it was broken on arrival.

People loved them and almost all of their customers ordered more than once, so it didn't seem to affect them much. But who knows, maybe they could have been a lot bigger offering refunds!