MBA2220 Q&A Wednesday: Should I extend my refund policy from 30 to 90 days?

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Hey oh. Welcome to the Dollar Business Advice delivered on a silver platter every single day with our 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 my co founder back in 2014 and today's episode is Q and A Wednesday. On Q and A Wednesdays I answer a question from one of you, one of our listeners. If you got a question you want to ask, go ahead and email me over at omar@100mba.net Today's question is from Lee and Lee asks, hey Omar, absolutely love your podcast. Been listening for years and decided to send in a question. My question is should I extend my refund policy? I sell online courses and I'm thinking about changing my refund policy from 30 days to 90 days. Do you think this is a good idea? Is there something I'm not thinking about or might get in trouble with? Would love your advice on this topic. I've been racking my brain going back and forth for weeks. Thanks so much for everything you do Lee. Well thank you Lee for being a listener and for the great question. I love this question because I've done a ton of research on what's called guarantees in Business, your refund policy is really a guarantee. It's a form of guarantee where you're saying, hey, if I don't deliver on my promise, I'll give you your money back. So in today's lesson, I'm going to answer Lee's question. If extending your refund policy actually makes a difference, if it helps, if it hurts, if there are some pitfalls, but also generally, what are some different versions of guarantees Lee can use. How Lee and everybody else who's listening can combine different kinds of guarantees to improve your offer and make it compelling, make people say, hey, I got nothing to lose. This is a no brainer. Let me click that buy button. So let's get into it. Let's get down to business. So Leo wants to know, should he extend his refund policy from 30 to 90 days? And as I mentioned, this is a form of guarantee. And basically the 30 day, 90 day is just a modification of this guarantee. So in my years of research on guarantees, because I've always tried to improve my guarantees, because guarantees lowers the risk or the perception of risk for your customers, making it easier for them to say yes to buying. One of the most popular guarantees of all time was Domino's pizza. In the 90s, they promised to deliver your pizza within 30 minutes or less or it's free. So you better believe a lot of people tested that guarantee. Now, you got to remember, this is the 90s, right? This is before apps and Uber eats and all that stuff where they can track when you actually place the order. They just had to jot down when you call and when they delivered, when they actually got to your door. Now the point of this example is that Domino's Pizza really grew tremendously in those years because a lot of people were ordering knowing that Domino's was the fastest. Why? Because if it wasn't the fastest, the pizza was free. So it was kind of a no brainer offer. You got to remember, when people are ordering a pizza, speed is one of the factors that they're considering in terms of the value of what they're ordering. Obviously they want the pizza to taste good, but that's just one thing. Variety of pizzas might be another value metric, speed of delivery is one, of course, the accuracy of the order, making sure they get the order right every single time. These are all values. One of the highest things people value when they're ordering pizza is how fast it gets there because they're hungry. If it takes an hour and a half for your pizza to arrive, you might as well just hop in the car and go to the pizzeria yourself. So what does this have to do with guarantees? Well, it's important to understand what a money back guarantee does and what the time limit does as well. What are the values or the levers you're pulling here? Well, when somebody buys something and it has a guarantee, let's say the guarantee is 30 days. What you're telling customer is like, hey, you have 30 days to evaluate this product. If you don't get your desired outcome within 30 days or before 30 days, you or entitled to a full refund. So as the business owner, you have to ask yourself, is it in your advantage to extend this time? And in Lee's case, where he's selling online courses, it makes more sense to have a longer return policy or guarantee limit. Why? Because there's a better chance they're going to get their desired outcome. Meaning they're going to consume the course, get the outcome they're looking for or the skill they're looking to gain from this course if they had 90 days or versus 30 days. So the likelihood of refunds actually drops. When I ran my own clothing business about 15 years ago, Zenum Designs, I actually experimented a lot on refund policy. And my refund policy for my clothing was 120 days, four months. Right now at the time, most clothing shops online or offline had a 30 day money back guarantee or 30 day refund policy. So this made my clothing, my offer, a whole lot more compelling. Just for the fact that it's different from the competition. I'm giving so much more time for them to make the decision. Now from the business side of things, the cost of a refund for me was more if it was a shorter period of time. Why? Because if somebody refunds a item of clothing, there's a good chance I will not be able to sell it if they wore it. Right. Right. Because it's just not new anymore. So I would have to give it away to charity is what we usually did. So it was chalked up as a loss. But before I can give it to charity, it would go back into storage somewhere before I can sort that out. And that would cost me money storage of that stock. So I rather them store it in their home for four months. And what I found is the longer they kept the clothing, the more likely they would wear it and use it and just change their mind about refunding it. They just start to love it or they think about giving it to somebody else or something like that. When you have to take action, you will take action. But when you have plenty of time, you tend to put it off. You got to look at your own business and say, hey, if extending the time limit of my refund policy helps my business helps the customer achieve their desired outcome, then that's a good idea. In my research over the years, in most cases, a longer return policy period is advantageous to you and the customer. There are exceptions, of course, with products that diminish in value very quickly. For example, like an iPad. An iPad that you buy today is the latest model. Within a year, it's going to be an old model. Within six months it's almost an old model, meaning that it might as well just wait for the new model. Right. So the value of that product diminishes over time. So therefore they can't be as lenient when it comes to the return policy. Now we talked about period of time when it comes to return policy or a refund policy. But like I said, this is a form of guarantee. What other things can you do to strengthen your guarantee? Sometimes people don't want their money back. They actually want the outcome. Say for example, you're a fitness coach and you say you will lose 10 pounds within six weeks and instead of saying or your money back saying I will continue to work for free until you lose those ten pounds. For this case where the losing ten pounds is actually worth more than getting their money back, that's a stronger guarantee. Wow, this person really believes in what they do, that they will actually guarantee the result until they get the result. Some of us are selling things that once are consumed, cannot be returned, so to speak. Meaning like say for example, you're selling a consulting package or some sort of strategy that once they know the strategy, they can kind of walk away and don't need you anymore and ask for a refund. They and in this case you may want to think about, hey, not having a return policy. Sometimes people have no refund policy when things like that. Or they can use the money they spend on further programs like store credit. But the point here is that you can get creative when it comes to your guarantees. What would make it stronger? What would make it a no brainer? For example, there's a guy in Australia that teaches a live in person course on how to build a tiny home. A guarantee for him would be, I'll help you build your first tiny home under $50,000. So if you're budget conscious and you really want to make sure you don't go over $50,000 on your budget to build your first tiny home, then this is a strong guarantee and obviously you'd add to it and say what if that doesn't happen? What if the cost out of their tiny home and figure out that hey, it's more than 50k, then maybe your guarantee is I'll work with you to get the budget under 50k. You might have some contacts in the industry, in construction, in labor and parts or materials, and you're able to kind of negotiate those things for them.

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To wrap up today's lesson, today's Q and A Wednesday's question from Lee Should I extend the amount of time in my refund policy? In my opinion, yes. It's often a win win for your business and your customers. The key here is to ask yourself the question by extending it, how does that help my business or hurt it? But as well, how does it help or hurt my customer? Because if it doesn't hurt the customer and only helps them, it makes your offer more compelling. It makes it easier for them to buy because the guarantee is so strong. Thanks so much for listening to the $100 MBA show. I hope you love what you hear. If you do, leave us a rating or review on Apple podcast Spotify and make sure you hit that follow button so you get our next episodes automatically. Before I go, I want to leave you with this Depending on your product or service your niche, sometimes your guaranteed to deliver on your promise is stronger than a free product. I know that sounds pretty crazy, but think about it this way. Remember that Domino's example? They guaranteed their pizza to be delivered in 30 minutes or less. Imagine then somebody says would you like to order pizza right now while you're hungry before the big game starts on tv? And it'll be delivered before the game starts or would you like to wait 10 hours for pizza? It's going to get here in the middle of the night and you're not going to be hungry anymore. Probably figure something else out. People be like, hey, let's just order the Domino's so we can get our pizza before the game starts and get in 30 minutes. It's worth the cash. In this case, free does not be a great guarantee. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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