MBA2084 How To Deal With Free Trial & Refund Abuse

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Visit Dell.com deals. Hey, welcome to the $100 MBA show. Because a better business begins with you. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and and in today's lesson you will learn how to deal with free trial and refund abuse. Most businesses will offer some sort of risk reversal, meaning the company will take on some risk to make customers feel comfortable to give their product or service a try. Whether that's offering like a 14 day trial before they're charged for their account or offering like a money back guarantee where they can get a full refund within a certain amount of time. But some of us when we offer these free trials or money back guarantees, they get abused. Customers use your product or service with no intention of paying for it, ask for a refund or cancel their account or give you a debt credit card during the trial period and leave you out of pocket. Because for many of us there's a cost involved to deliver that free trial or that product or course or program or physical product to get it in their hands so that they can then refund it. To many business owners this is incredibly Frustrating because it costs money, time, effort, and many people are banking on these sales so they can hit their targets for every month. So in today's lesson, I'm going to walk you through some strategies, some techniques to mitigate these problems, to see the issue for what it is and address the problem that it causes you without ruining your business or offer. For those who actually legitimately want a trial or would love to have a money back guarantee just in case it's not a good fit. This is a topic that's not discussed. There's very little information out there on how to deal with this type of abuse in a business. And I've had it. As a business owner and hearing about these problems online, I'm going to do something about it. And that's why I'm delivering today's lesson. I'm going to show you what has worked for me and how I've been able to get to a point where it's like I feel comfortable with this solution because it's kind of covering all my bases without again ruining the experience for the rest of my legitimate customers. So let's get into it it let's get down to business.

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Listen, I totally get it. It's incredibly frustrating to see somebody not actually convert from a free trial to a paid customer or they buy the product and then ask for a refund a couple weeks later. And you know for a fact, because you could see inside of your dashboard or in your, you know, client management software or customer software that they've used the product that they have actually consumed a digital software or course or, or maybe you're sending a physical product. I've been in E Commerce before where they return the item and it's obviously been used. I used to have an E Commerce clothing store if you follow my story. And man, did we lose a lot of money on those types of refunds because we can't sell it again. There's BO in that clothes. I know that's gross, but that was really my reality. I was like, I can't do anything. I actually can't resell it. What we actually used to do is used to just throw it in the wash, get it cleaned and just give it to charity. This is why I always say, if you sell physical products and have a refund policy, you need to have high margins. Because in this example, not only was I out of pocket because of that product, what it cost me to produce that product, it cost me to store it, it cost me to ship it to the customer. Because in many cases, I offered free shipping for those who ordered things at a certain point in their cart. Like in terms of price point over $100. I had to package this product. I had to advertise for this product.

We had to deal with the customer.

Meaning that there was customer service being spent, meaning man hours being spent on this customer. All of that is out of poc. This is really frustrating. And because I understand how frustrating it is, this is why I'm going to start with this strategy or this tip or this first step in this process. And that's answering the question in factual terms, is this really a problem? Really? I'm being honest here. You got to answer this question. Because sometimes it's more in our head than it actually is in reality. I've caught myself in this situation more times than I'd like to admit where in my head, I think this is such a big problem. Losing so much money. It seems like every other customer is abusing our trial or our refund policy or whatever situation it might be. Instead of just living in that emotion, what I'm asking you to do is I want you to get some evidence like you are a lawyer in a case. I want you to actually prove to yourself that this is actually a problem to the point where you need to take action. Where this abuse has gone absolutely rampant in my experience, nine times out of ten, and yes, I've had this research or I've answered this question more than 10 times. Nine times out of 10, it's all in my head. It's happening, but not at the rate I think it's happening. Meaning when I do my research, like, for example, at Webinar Ninja, we have a free trial. Yes, there's people that sign up for a free trial with a dud credit card where we can authorize the card that there's actually credit but not enough credit to cover the next upcoming invoice or the bill for the reoccurring charge once the trial's up. So they'll sign up, they'll use our product for 14 days. They'll run as many webinars as they like. They'll be using our servers and costing us money. And then when it's time to renew or time for their trial to be up. Day 15 in our case, their credit card fails and we're out of pocket. I did some research, and before I did that research, I thought, oh, for sure. The percentage of customers that do this would be something around 10%. After doing the research, I realized it was less than 2%. Less than 2% of my customers. Like 1.8% of my customers who sign up for a trial, their card fails and it's a genuine abuse. Meaning sometimes people's cards fail because they didn't realize it was expired or maybe, you know, it was over the limit, and they need to make a payment. And we have a dunning process where they get an email telling them, hey, we were able to charge your card. And eventually they actually update their card and they're able to continue with the service and we actually collect payment. But the point here is that I'm talking about people that are genuinely abusing the system. And it was 1.8%. I dug even deeper. I said, okay, 1.8% of my customers that sign up for trial abuse a trial, meaning they never actually pay for it or pay past the trial. They put a dead credit card. How many actually have activity in their account where they're actually using the product? Now, mind you, it doesn't really matter if they actually had the intention to use it or not. They could sign up and say, hey, I'm going to use this for 14 days, and I know that the card's not going to work, but I'll just run my webinars with it until it fails. Many people, they don't get around to do it. They don't get their act together. They don't run the webinar. And what I found is 28% of the people from the 1.8% had actual webinars scheduled and ran a webinar. So not even all the people cost me money from the 1.8%. So what I'm trying to prove here is that you need to actually do the research, look at your data, and actually establish how bad is this problem? Is it really as bad as you think it is? And you need to find out because you need to make decisions based on this. What do I mean by this? Well, when I found out that I only had 1.8%, I had a couple choices here. I could say, hey, you know what? I don't want any percent. I'm going to do some things to make sure this never happens. I'm going to figure this out. I'm going to talk to my engineers. I'm going to make sure they can't use a failed credit card again when they check out again. If they try to do another free trial, I'm going to make sure that this IP address is blocked. Whatever. You know, I'm thinking about all these technical ways to prevent this from happening. But then I thought, why? For 1.8% of abuse and even those people, 72% of them don't even use the product. And what's my opportunity cost? Like if I'm getting my engineering team to work on this and trying to prevent these people from doing this again, they're not working on things to help grow my business, to bring in new features, to build things that I can help me earn more expansion revenue. So think about when you add more solutions to problems or when you suggest solutions to problems, are they actually hurting you? Are you preventing yourself from doing better things with that time and money? So that's why this exercise is so important. Make sure this actually is a problem. Same thing goes if you have a refund policy. What percentage of people actually refund? Okay, that is very important. Once you've established that, ask yourself, how much money are you losing from this whole problem? What's the cost here? Because the cost might be very, very low or lower than you think. And it may not be worth you investing time or money trying to fix it. For example, in my E Commerce business, my clothing line, like I mentioned, I got refunds on shirts that I couldn't sell. Most of them I couldn't sell because they were worn and they smelled like people's BO I totaled, how many refunds am I getting every single month? At our peak, we were getting about 1,000 customers a month. And I realized that we only had seven refunds a month when I looked at the numbers. And the interesting thing is that because we live in reality, we live in a day to day life. Seven refunds are very apparent. You see them on your dashboard, you see the email, you process them yourself, maybe. And seven is like what, almost two refunds a week. It feels like a lot in reality. And when I say reality, I mean like in the day to day life and the practical life. But seven refunds out of a thousand sales is less than 1%. It's less than 1%. And I totaled how much money is it costing me for those seven refunds? And I was being really, you know, generous with my estimations and it was something like $300. And I asked myself if I didn't have a refund policy where I allowed people to refund the product and exchange things or whatever. If I didn't have this policy in place, would I lose more than $300 a month in profit or in revenue? And the answer is yes, Hell yes. Because all my competitors were allowing people to refund. I would be the only one. And when it comes to clothing online, it was custom tailored clothing online. People need to have the peace of mind that they can refund it if it doesn't fit. So know the cost and know, hey, can I afford this cost? Is it worth me removing the policy? Is it worth me trying to prevent this from happening? Sometimes this is just the cost of doing business. Just like, you know, having a website or employees or rent, if you're in a physical location. Now, let's say you identify this issue and it's actually an issue that you need to solve. Like it's rampant, it's cost you a lot of money, a good percentage of your sales are being refunded or there's some abuse with your trial. There are some things you can put in place. So when it comes to software, I got a bit of experience with this, running a software company for the last eight years. There are some technical things you can do to kind of block people from abusing your trials or signing up over and over with different emails. You could do an IP check where, you know, if that IP address tries to log in or tries to sign up, they won't be able to. You can allow them not to use the same credit card that keeps, you know, failing. Many services that process credit cards like Stripe have a fraud alert. Well, they won't let the sale go through or the trial go through if they notice the card has some sort of record of fraud or seems like it's maybe stolen or they don't have the right information you might already have in place. You know, they can't sign up with the same email, but email's an easy one that people can just sign up and get another email address and user service. Now, I say this because I know all these options. I looked into all of them and my recommendation is only choose options that don't make it hard for real customers to buy. Right? Don't make it super long with all these forms and checks or error messages that pop up for no reason. Or maybe it's just overly cautious. Again, you probably are going to find the vast majority of your customers are legitimate and are not going to abuse the situation. But there are some options, like I mentioned, that can allow you to mitigate some of this risk. If you want to do that, just speak to your engineer or developer that's working on your site. Now, if you run a course, a coaching program, something like that, and people have already taken on the information, they've already consumed the information, and they say, hey, this doesn't work for me. I don't want to do this. Give me my money back now. Many people have a no questions asked money back guarantee. And I found that in courses and coaching, refund rates are incredibly low because most people feel like, hey, the content is probably pretty good, or they could visit the content later. Most people just say this when they don't actually consume the content. So my opinion is make sure when you're hosting your course or your coaching, have some way to track if somebody has actually consumed the content. So, for example, if you have a coaching software or some sort of live course software that tracks attendance, you can verify this person actually attended all your live coaching or attended each recorded video. And your policy could be around that could be like, hey, you actually have to attend class, right? You have to actually attend and take the content on and try it to qualify for a refund. And I've seen a lot of very, very successful creators like Ramit Sadhi use this policy where it's just like, hey, if you do all the work and you attend all the classes and you still feel like you haven't gotten your money's worth or you haven't gotten the results that you wanted, then I'm happy to give you a refund. But you gotta meet me halfway, right? Like, this is not, you know, magic here. I'm not a miracle worker here, right? So with software like that, it's easy to kind of track. If you're asking me what kind of software do I recommend? Well, you know, I run a software company called the webinar Ninja. We're actually releasing a new courses and coaching feature. It's in beta right now. So we're really excited to release it to the public very soon. If you're interested, go to webinar ninja.com courseninja I've seen creators have a 1 refund policy, meaning that you can only refund a product once. Why? Because they see customers buy courses, buy training, and then they ask for a refund over and over and over with all their courses, with all their training. Make sure that these policies are in your terms and conditions and that people agree to these terms and conditions when they buy. Why? Because they might get charged and they may Want a refund. And then they'll go to their credit card for a chargeback and say, hey, I don't authorize this charge. The credit card company is going to come to you because you're the one who made the charge. And then you could supply the evidence. Hey, I sold this course. These are my terms. They've agreed to these terms when they signed up. And here's the activity they did consume the course or the the training. And in my experience, this is enough information to win the chargeback.

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It feels good to save big. It feels good to Geico. Now, to wrap up today's lesson, I want to talk about how to mitigate refunds. If this is indeed a problem with physical products like an E commerce store, this one's a little tricky, especially if you're in the clothing or footwear industry where people need to try it on and then they want to exchange it for a different size. Now, when I ran my ecommerce store, I really encouraged exchanges, so I had no problem with exchanges because no money is being lost. I'm not refunding any money. I may not be able to resell the exchange product, but at least I'm not totally out of pocket with the refund and the product itself. So you could have different policies for refunds and exchanges. So you can have unlimited exchanges but have a limited number of refunds per customer per month or something, depending on how bad your situation is. But the point here is that you don't have to lump it all in one go. You can have a different refund policy versus your exchange policy to make sure that you can mitigate that risk and help people feel comfortable that, hey, I could order this and try it on, exchange it if it doesn't work out. The other thing that really helped me big time selling clothing online is really having helpful information when it comes to sizing. The more information you can give them to help them choose the right size, the less likelihood they're going to want to exchange a refund. One of the techniques I've seen online that's really good for helping people with sizing is suggesting the size based on the sizing of other products they've bought, popular products. So you might say, when you buy a T shirt from Nike, what size do you get? Large. It's kind of like a questionnaire. If you choose large in Nike T's, then large in our company is what you need, or extra large is what you should order if you are a large with Nike, this helps people really feel confident that they're going to get the right size. Now when it comes to refunds, people don't just refund for size, right? Most people are pretty good with sizing now online. And you might have a product that has nothing to do with sizes, right? They just refund. One of the ways to mitigate your refunds, and I'm telling you this is actually pretty surprising, is to improve your packaging. I know that sounds crazy, but when I improved my packaging, when I actually delivered my product in a very impressive packaging, people are immediately like, wow, this is really nice. The quality of this product and the presentation is incredible. A lot of people are impressed by this and therefore feel like this is high quality. Now obviously your product should be high quality. It should be worth their money. But packaging kind of takes it over the top. And a lot of people refund because they just feel like it's not the quality they were looking for. They were thinking they'd be higher quality, you know, given the price. And if you're trying to shore that gap, investing in a little bit better packaging can help. We had a little thank you card. It was like a posted card sized note where we thanked them for their purchase. And on the flip side, in plain English, we explained how to take care of their new baby, which is their new shirt or new item of clothing. And it wasn't just like how to wash it or dry clean it. It was like, hey, hang me in your closet. It's going to last longer and look great. Wear an undershirt when you wear this shirt. People love that. They just thought it was interesting that we were giving tips on how to take care of it so it could last them a lifetime. And in their head they felt like, okay, this product is actually going to last me a long time if I take care of it. Therefore, the value just increased in my head and nothing changed with the product. I just showed them how to take care of it. And that's all with the packaging. Guys, thank you so much for listening to the $100 NBA show. I hope you found this topic, this discussion today helpful. I've been wanting to talk about this for so long because I hear about this all the time on Twitter, on social media. I get emails, people talking about, hey, I feel like maybe I'm getting abused here. So I wanted to give some advice, some strategy and just some honest truth that can help you navigate and see if this is actually a problem. Get the evidence to prove it as a problem, know the exact number of loss, you know, dollar amount that you're losing and make decisions based on that and hopefully implement some of the strategies if you have to, that I share today. If you love today's episode, if you love the show, the best way to support us is to share it, pay it forward, and share this podcast with your friends and family. Just on social. Choose whatever you like. Instagram, Facebook, Twitter, whatever you like. Just say, hey, check out the $100 MBA show. Popping the link. I'm sure you could share right here on the app. You could do it right here on whatever podcast app you're using. Thank you in advance for doing that. Before I go, I want to leave you with this. In business, you're going to deal with tough situations like this one, like the topic we discussed today. But it's very important for us to really get real about what the problem is so we don't waste our time or money or effort on something maybe is not really a problem, or maybe it is a problem, but it's not as big as we think it is. And it's not worth our time right now to tackle and drop everything and just say, okay, this is a crisis. No, in business, it's important to triage. Just like in an emergency room, somebody with a broken finger is not the same as somebody who has a heart attack, Right? You need to deal with the heart attack first. You're gonna get to the broken finger guy, right? We're gonna take care of him, but you can't do it all at once. So we got a triage just like in an ER. Thanks so much for listening to the $100 RA Show. I'll check you in tomorrow's episode, Q and A Wednesday, where we answer a question from one of you, one of our listeners. Can't wait for that. I'll see you then. Take care.

We've all been there. You hold on to a coupon, hoping to cash it in at the store, but then you forget about it and suddenly you've got a mountain of useless expired coupons.

Do you think this one's still good? Free milk.

Oh, mate, that expired in 1993.

Dang it.

Fortunately, there are better ways to save money. Like by switching to Geico, you could save about $900 on car insurance without ever touching a coupon.

Ooh, how about this one? Half off floppy disks.

Now, you should try a bit of spring cleaning.

It feels good to save big. It feels good to geico.