Creating a Refund Policy

Unfortunately, customers won't always leave your business smiling. Plan for unhappy customers--and hopefully lure them back--with a refund policy.

It's a good idea to create a refund policy for manyreasons--your credit-card payment provider might require one, oryou don't want to look blank (or have an employee refuse) thefirst time a customer requests a refund. But exactly how far shouldyour policy go?

I recommend a refund policy that goes like this: 100 percentsatisfaction or 100 percent money back.

Why not? If you're great at what you do, why not promise 100percent satisfaction? Vow to resolve every customer complaint tothe customer's complete satisfaction, including a full refundif that's what it takes. (By the way, your credit card companywill love this policy.)

When you put together your budget, add a category labeled"Customer Satisfaction Costs." This is an expensecategory-money (dinner tickets, carpet cleaning and so on) that yougive to the customers to make them happy. This won't be morethan 1 to 2 percent of your total sales. Some folks are just badcustomers. They'll try and get something for nothing and maytake advantage of this policy. But the bad apples never amount tomore than 2 percent of all your customers. Expect some bad applesand budget them in. You don't want to craft a complicatedreturn policy for that bad 2 percent.

If you're refunding more than 2 percent of your sales, thenyou have a service or production problem that needs your immediateattention. Take every customer complaint very seriously. Thank thecustomers who let you know that they're unhappy. Ask questions.Try to find out what happened. Ask them how you can make it better.Then do as directed.

Don't become defensive even if you feel like you maybe getting the short straw. If you make the customer"wrong," you always lose. However, craft your wordscarefully when you offer a refund. Otherwise, it will sound likeyou overcharged in the first place.

Try this response to a customer complaint, "Our intent isto create a product (or service) of exceptional value. I apologizethat we've failed to do so in this situation. What will it taketo make this better for you?" Then do what they say. Remember,any refund policy that depends on the legal system is a loser foryou and your customers. The big winners in the courtroom areusually the lawyers.

Of course some companies have more on the line financially inregards to direct costs (a building contractor, for instance.) Inthose cases, it makes sense to build payment points throughout theproduction process to keep cash flowing and to spot dissatisfactionbefore the job is finished.

The point is, keep it simple. If they don't like it, theydon't pay.

Author Ellen Rohr nearly starved in her family's smallcontracting business--until she learned how to manage money."Do what you love, certainly," she says, "but themoney won't just take care of itself." Ellen's missionas an author, columnist and seminar leader is to help people make aliving doing what they love.


The opinions expressed in this column are those of the author,not of Entrepreneur.com. All answers are intended to be general innature, without regard to specific geographical areas orcircumstances, and should only be relied upon after consulting anappropriate expert, such as an attorney or accountant.

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