The reality of refunds for digital products

The reality of refunds for digital products

Whether you’re starting a new eCommerce business, or you’ve been up-and-running successfully for years, refunds are an unavoidable fact of life.

It’s a fairly straightforward process when you need to return that new pair of Chuck Taylors you purchased because they just aren’t your jam. You return the shoes to the retailer and the retailer returns your money. Even-steven.

However, in this article we’re going to look at what happens when a refund is requested for a digital product. What happens when you’ve sold an eBook to a reader who suddenly realizes they were actually looking for a thrilling mystery series, and not a steamy romance novel?

Confusion. Frustration. Anger. Disappointment. Panic.

These are all feelings you could have. When you’ve put countless hours into a product you’re selling, that refund request can pack a mighty punch in the gut. But it doesn’t have to, and it shouldn’t!

Repeat after me: Refunds are an unavoidable fact of life. The sooner you accept this as fact, the sooner you can learn how to handle them like a pro.

Common reasons refunds are requested

“Too small. Too big. Wrong color. Wrong item. I don’t even remember ordering this!” These are just a few of the reasons cited when consumers return physical products and request a refund.

When exploring why refunds are requested for digital products, none of those explanations are fitting. When refunds are requested on digital products it’s usually because of one of the following reasons:

  • The purchased product didn’t function as expected (typically software)
  • The purchased product (software again), wasn’t compatible with a user’s existing setup
  • The purchased product was of lesser quality than expected
  • The charge was for a renewal payment
  • The customer didn’t understand what it was they were purchasing
  • The customer changed their mind or decided the product was no longer required

These are just a few of the refund request reasons you might encounter. But, wait just a minute there… what happens to the actual product?

The unique nature of refunding digital products

When a refund is requested on the purchase of a physical product, the product is returned and the money refunded. However when a refund is requested for a digital product, there is no way for the customer to truly return the purchased item. It remains in their possession indefinitely.

While that can be a daunting scenario, especially if your eCommerce business is in its infancy, there are ways to lessen the uneasiness you may be feeling:

  • Structure your business around providing extra capabilities and features when a customer completes a purchase. Extra capabilities and features that will no longer be available if a refund is issued.
    • If you sell software, by offering support or access to updates you can increase customer satisfaction, discourage refund requests, and help prevent fraud.
    • If you sell photos or graphics, you could choose to only allow a certain amount of images to be downloaded per month.
    • If you sell courses or a series of eBooks, you could set them up as membership levels that can only be unlocked after prior courses or books have been purchased.
  • If you run a membership site one of your terms will likely be that access to content is revoked when a refund is issued. Be sure to clearly outline the terms of membership upfront so customers aren’t surprised further down the road.

Refund statistics

While there hasn’t been much research conducted on the topic of refunds for digital products, we are happy to share some fast facts we’ve seen for Easy Digital Downloads over the last year.

Over the last 12 months, in terms of number of sales, around 9% of all completed sales were later refunded. In dollars, that’s about 10% worth of revenue refunded. These figures include new purchases and renewals. (Bear in mind that software is a different beast to other digital products, so your refund rate might be very different to ours.)

To put that into perspective, some physical product online stores see returns around the 20% mark, or even up to 30% based on seasonality. Some brick-and-mortar stores have return rates around 10%.

In the past, like many other digital product sellers, we tried to save almost every refund request we received. Terrified by the impact it would have on our business and our bottom line, we’d go back and forth with customers attempting to resolve their not-easily-or-quickly-resolved issues. This resulted in unnecessary stress for our team, and our customers were unhappy with the drawn-out process. Not OK. Those refund statistics might sting if this is your first digital store rodeo, but at the end of the day, there are two key things to remember:

  1. Say it with me again… Refunds are an unavoidable fact of life.
  2. Your reputation can make or break your business.

We would much rather our ex-customers walk away happy with how we resolved their request, than drag it out and make it a painful, rant-worthy experience for all parties.

Why you should provide refunds

While establishing a fair and reasonable refund policy will give customers peace of mind, it may also cause some anxiety for shop owners. But having a strict “No Refunds” policy may actually cause more problems, and expenses, than it alleviates.

I encourage you to provide refunds on digital products. They not only help protect your customers, but they do have some often overlooked benefits for your business:

  • Having a fair and reasonable refund policy can help you stand out from your competitors that don’t offer refunds.
  • I’ll bet part of what drives you as a business owner is providing high-quality products to your customers while making a profit. Knowing that customers can, and will, request a refund for subpar products might be the extra motivation you need to crank through that latest new product or extra feature.
  • Providing customers with a hassle-free refund experience means the customer will walk away feeling good about your swift handling of the situation, and it will reflect positively on your business (there’s no better advertising than word-of-mouth advertising!). Because of a satisfactory outcome, they may return in the future if their needs change.
  • Chargebacks are a nightmare. If you refuse to issue a refund, your customers may take matters into their own hands and dispute the charge with PayPal, Stripe, or whichever payment processor you use. This can result in a lot of wasted time and expenses on your part.

The anatomy of a refund

Start with a clear refund policy

Having a refund policy that meets the needs of your business, and your customers, means everyone can walk away from the purchase feeling satisfied. Make sure your refund policy is easily identifiable on your website and clearly outlines your terms. A good refund policy should include:

  • Timeframe. How many hours or days notice do you require from date of purchase?
  • Non-refundable products. Are you selling any products that are non-refundable? Be sure this is clearly stated in your terms and on the product page.
  • Consequences. Once the refund is issued, what happens next? Customers may lose access to support, certain downloads, your content, or future updates.
  • How to request a refund. All of the above information won’t be helpful to a customer if they don’t know how to contact you. Include a link to your support form or the appropriate email address to simplify the process.

Simply refund the purchase, or try and save the sale?

Refund requests are not all bad! More often than not, they allow you to identify what customers are looking for, what they didn’t find with your product, and what can be improved upon.

In some cases, a refund request may be due to a simple misunderstanding of what services or features are available. If someone opens a refund request because they think you didn’t include something they needed, but you actually do have that feature or product available, they might just need to be pointed in the right direction. In these instances you can save the sale.

Many customers will be very clear as to why they’d like a refund when the request is initiated. If a customer fails to provide you with this information it’s OK to ask, “Could you tell me what you didn’t like about the product you purchased?” But when doing so, you’ll also want to state that you’ll gladly issue the refund. Customers may mistake your genuine interest as a way of getting out of the refund.

Be willing to make exceptions to the rule

If your policy clearly states that all refunds must be requested within 30 days of purchase then you’ll expect your customers to abide by that timeframe. When a customer requests a refund on day 42 your immediate reaction may be to deny it. After all, they are well past the 30-day period stated in your refund policy. But let’s hold on before we rush to any quick decisions and consider the facts:

  • Did the customer ask for help trying to resolve an issue with their purchase prior to requesting a refund?
  • Is there a different product the customer would rather have?
  • Does another product you offer fit their needs?
  • Can you offer a discount or credit on a future purchase?

If you’re able to save the sale and keep those hard-earned dollars in your pocket, fantastic! But be willing to review all aspects of the situation and adjust your decision accordingly.

Be willing to hold your ground when necessary

Refund policies are meant to protect both parties, the business and the consumer. There will come a day when you’ll be asked to make an exception to your refund policy and you’ll politely deny the request. Whatever the reason may be, the most important thing to do is stand by the decision that was made.

The policies you’ve established exist for a reason and should be enforced, within reason. Negating a company policy can adversely affect your reputation with your customers, and your employees. Be prepared to stand by the policies you’ve enacted when necessary. Word can quickly spread between customers, and employees, and you’ll have a lot more explaining to do then.

Always, always, always make it easy for customers to request a refund

When a customer has decided the product they purchased isn’t for them, they may already have faced a number of obstacles. The product may not function as they had hoped it would or they may have already contacted you regarding quality issues. Whatever the reason for the refund request, making it easy for your customers to get their money back can help to soften the blow for both parties.

If your refund policy doesn’t clearly state how to request a refund, customers will eventually take matters into their own hands. Things typically go one of two ways when this happens, and neither scenario is ideal for a business owner.

Social media and word of mouth advertising make it easy for customers to share their opinions. When a customer is displeased with the level of service they’re receiving they may resort to a verbal attack. Resolving an issue via social media can be challenging and puts all eyes on your business.

If requesting a refund is difficult, some customers will open a chargeback or have their bank reverse the payment, which can impact you negatively. Chargebacks are a costly expense for your business.

Approximately 8 in 10 customers admit to filing a chargeback instead of working out issues directly with a seller.eConsumer Services

When a dispute is opened with a bank, PayPal, or Stripe, businesses will be asked to gather the required data to resolve said dispute. In most cases there is a fee attached to this along with the original refund amount. The dispute has now cost you more than the initial refund amount and you’ve likely wasted countless hours working to resolve it.

Make it extremely clear in various places on your site how customers can request a refund. Put it in your Refund Policy, and link to your Refund Policy from your pricing page (if you have one), or in your purchase terms and conditions. You could also provide information on how to request a refund in your FAQs, in your documentation, on your Customer Support page, or on your Contact page. Just be sure to make it easy to find and easy to do.

So, how can you reduce refunds overall?

Looking at all of the above, what steps can you, as a business owner, take to reduce the number of refund requests? Answer: Provide as much relevant information as possible up-front, and sell high quality digital products that deliver on your promises.

These are our top tips for preventing refund requests:

  1. Be honest with your website copy. Make sure your product delivers what it promises on the metaphorical box.
  2. Write clear, detailed product descriptions.
  3. Provide useful supporting documentation and answers to common FAQs.
  4. Make use of demo videos, samples, and free trials.
  5. Make pre-sale support a priority, or offer a pre-sale chat feature on your site.

These are all tools you can arm your customers with before the sale is ever finalized. Providing your customers with the information they need to make an informed decision before they complete their purchase can greatly reduce the number of refund requests you receive.

Remember: Refunds are an unavoidable fact of life

Refunds can have positive consequences for your customers and your business. They can be a way to strengthen your relationships with existing and prospective customers, and improve the reputation of your brand.

While dealing with refunds is inevitable, dealing with them graciously is more important.Paolo Tajani

Over time, you’ll learn to not take every refund request personally, and the sting you once felt will eventually fade. Listen to your customers and learn from them. What can you change, add to, or improve upon to better service your customer?

Does your eCommerce business currently have a refund policy? Is it easy for customers to locate? Does it clearly state your policy and outline the steps a customer needs to take to request a refund? What advice would you share with other store owners when it comes to refunds?

Illustration by Jessica Johnston.

Comments

Tim Graham

Great read and all very true!

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Keri Jacoby

I’m glad you enjoyed it, Tim. Thanks for commenting!

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Thanks for the great reminder Keri. I agree, refunds are a part of life. You cannot please anyone. Even if the product is so great and you think they will never ever want to return it, you’re wrong.

So, as store owners, be always ready to give refunds. 🙂

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I mean, reminders. 😀

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Keri Jacoby

You’re quite right, you can’t please everyone! Having a fair refund policy is a great way to make sure your customers walk away happy 🙂

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J. Jennings

I purchased a digital product and was diagnosed with cancer two days later. Knowing I was going to be extremely broke and have no time I requested a refund for a digital product. I felt very bad as I knew they would think I was trying to rip them off. The company was very gracious and I am really looking forward to being cancer free and supporting their kindness to me at a very trying time.

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Keri Jacoby

I’m so sorry you were diagnosed with cancer. It’s good to hear you had a positive experience with the company when you requested a refund. The kindness of others can have a huge impact when you’re faced with difficult times.

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Very good read! Every store owner (brick-and-mortar or online) will one day get face to face with the reality of refunds. And of course refunds aren’t such a bad thing, because they tell much about your product or service. Getting a refund request from times to times is something I consider normal: it happens that a customer expected something else from your service or product. This happens to us once or twice a month, which is nothing! But if you start getting refund request systematically, this means there’s something wrong with your product or service, and should be taken as some kind of a wake-up call. All in all, one can get valuable information from his or her customers, when they reach out to ask for a refund. Try and make the most of it, and consider your refund, an investment to make your product/service even better!

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Keri Jacoby

Thanks, Nick, that’s great advice! Feedback from customers when a refund is requested can help a company grow and evolve and ultimately improve their offerings. Refunds aren’t all bad!

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Keri,

I have been a long-time customer of Pippin’s both for the paid and free.

I have had great experiences with products and with refunds from his team.

EDD sets the standard and this post is a perfect example of putting into practice what you preach.

Kudos for the time you put into this informative post and as a Digital download provider, I will keep a copy of it close by.

Good job.

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Keri Jacoby

Thank you for your positive comments, Paul! We appreciate having you as a customer across multiple brands and look forward to continuing our partnership with you.

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I agree with everything ~ and I do mean everything ~ you just wrote.

My personal experience was that I had wanted to buy an “All Access Pass” and kept putting it off because of the ~ No Refunds ~ policy.

Which is why I entered into quite a long discussion with Pippin on this very subject last month, and found out his views, or at least I thought I did.

So, I find it strange that your terms and conditions for the “All Access Pass” still prohibit refunds exclusively.

They say…

“Can I request a refund?
For our protection, no refunds are allowed for All Access Pass.”

Perhaps you can persuade Pippin, where I failed?

Or failing that, maybe you can help me understand how to be selective about what you provide refunds for, and how, in certain circumstances, what you just wrote can be ignored?

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Keri Jacoby

Thank you for your comment and your feedback on our current refund policy, Terence.

Refund policies give customers peace of mind, but they do need to be mutually beneficial to both the customer, and the business owner. Our All Access Pass is a unique offering and, as you’ve stated, the only exception to our 30-day refund policy. This decision wasn’t made lightly, but was based on years of experience. Because the All Access Pass provides a customer with unlimited access to all available EDD extensions, it becomes a risk to us to offer refunds on it. The risk for us is that a customer will purchase the All Access Pass for $899, download thousands of dollars worth of extension, and then ask for a refund. This is indicative of fraud.

It’s unfortunate these scenarios exist and that businesses need to protect themselves from them. Each business owner needs to find the balance and structure their refund policy in a way that discourages fraud while protecting honest customers.

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As I mentioned to Pippin, to me it feels like you are ~ quite rightly ~ protecting yourselves against those sites who null your software, and obviously want the easiest way to get as much of it as they can, at one time.

But in the process of limiting your refund policy you make the bundle very much less attactive to buy to everyone else, which tends to play into the nullers’ hands, so is, I think, throwing the baby out with the bathwater.

Those who resell nulled GPL software claiming it will be supported by the author are despicable, and they will always be so, but they won’t stop stealing and cheating because they either don’t see or don’t care about the harm they are doing.

However, the net issue is, surely, that people with nulled software should not be able to get “free” support from the author. So surely there has to be a better way of ensuring that’s the case, than hacking your refund policy?

You already ask for the registration key when I open a ticket. Isn’t that enough?

Terence.

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[quote]The risk for us is that a customer will purchase the All Access Pass for $899, download thousands of dollars worth of extension, and then ask for a refund. This is indicative of fraud.[/quote]

Or it could just be indicative of the fact that when she got all the software together, installed and tested it out, it wouldn’t do what she expected and need it to do.

As you don’t have freemium versions of everything, or sandbox demos, how was she to know that that? What is she supposed to do with her purchase when she finds out?

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It seems to me that you are advocating one thing and doing another.

I repeat ~ “As you don’t have freemium versions of everything, or sandbox demos, how was she to know that that? What is she supposed to do with her purchase when she finds out?”

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Terence,

The main point that seems to be repeatedly missed here is that the All Access Pass is not designed for customers that are unsure of what they need / wish to use. It is designed as a top-tier option for those customers that already know which plugins are required for their store(s)’ functionality.

For any one that is not sure precisely which plugins are going to be needed, we always recommend that customers start by just purchasing the extensions they think they’re going to need. All of those extensions include a 30 day refund policy. All of those extensions are also eligible for being upgraded to the All Access Pass at no additional cost. For example, if a customer was to purchase 3 extensions and then, six months later chose to upgrade to the All Access Pass, the final dollar value spent would be identical to purchasing the All Access Pass outright. The difference, however, is that they would have the flexibility to test plugins for 30 days before knowing if they were the right plugins for their use case.

In the example you have given us several times, you were unsure which plugins you needed, so how could you rest assured that it was safely to purchase plugins if you couldn’t get a refund? The answer is simple: don’t go straight for the All Access Pass, which is every extension and, instead, purchase just the ones you think you need. Once you’ve determined for certain that you wish to use EDD and if you need more extensions, then consider an All Access Pass.

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Terence Milbourn

Hi Pippin,

I have just seen this very interesting and informative article here — https://wisdomplugin.com/refund-policies-wordpress-businesses/ — which might interest you if ever you decide to review your refund policy restrictions.

Terence.

Reply

Yes, I can see how that makes sense to you Pippin, but it doesn’t work like that from the customer perspective.

She only gets to find out whether she can build the kind of site she wants, once she has the benefit of ALL the plugins and extensions she thinks she will need, installed on her site, has learned how to use them all, and experimented in getting them all working together, plus any other plugins she needs to run her site.

And not everyone is able to work on their new site 24/7, so the piecemeal approach you advocate would typically stretch development over the 30 day threshold, which would make your money-back guarantee difficult to manage and largely irrelevant.

Don’t forget, we’re talking about learning and building a complex ecommerce site and the hosting it needs to run on, so she’s not starting from the position you are in as a developer, of being able to know pretty much what’s needed; what works and what doesn’t.

And, of course, one thing she could be depending on, is that, if it doesn’t do what she hoped it would, she can always get a refund.

So, if you are going to be selective about what gets a refund and what doesn’t, personally, I think you should make it more obvious. I know it appears in your terms and conditions, but on the All Access bundle, shouldn’t you do something like the tobacco packaging warning messages, where you say clearly “This bundle is not covered by our money back guarantee”?

Yes, you may sell less All Access bundles, but customer relationship and trust benefits would accrue, and they are ~ as you know~ priceless.

Terence.

P.S. I don’t like having this conversation with you because I know you to be a straight shooter, someone who can be trusted, and I know from experience, you develop first class products. It was a big surprise to me when I first found out about this deviation from your normal policy, and on this occasion, in this instance, I just think you have have it wrong, that’s all.

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I do appreciate your feedback, Terence.

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Interesting article, thanks! We have a similar refund rate for our own WordPress plugins (8-10%). I notice that you have combined the refund statistic you gave for new sales and subscription renewals. I assume this is because like us, you use EDD and there’s no way to report on these separately! It would be really useful to know the refund rate for sales and renewals separately, is a report for this on the horizon in the new reporting system you are working on?

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Reka Salamon

Does anyone know where can I report a website? we have bought their digital product (a 360 virtual tour software), however the product is buggy and we are unable to use it. We have contacted support, however they refused to give us a refund. Any ideas how should we proceed further?

Reply

Hi Reka,

In that kind of case there are a few things to consider.

First, check the company’s refund policy. If your purchase is within the refund policy and period, you should definitely be able to get a refund. If your purchase is outside of the refund window or does not comply with their refund policy, they could be within their right to refuse the refund.

Second, if your purchase is valid for a refund per their terms and conditions and they’re still refusing to issue a refund, contact your bank or credit card company and submit a dispute for the charge. While charge disputes should not typically be used as they cost the company a lot in fees, it’s a good option for you (the customer) when the company isn’t willing to honor their refund policy.

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Reka Salamon

Thank you for your reply Pippin! The problem is that on their website nothing stated clearly about their service or how it works, so we have signed up for a trial version, but we were told in order to use the software we have to purchase a license (we were unable to test it properly in trial mode). So we have purchased it, however the system is buggy and we couldn`t use it, and we were unable to use it as shown on their videos.

So we have contacted support asking for refund as we are unable to use it, however their reply was it says in their terms and conditions that
they do not provide refunds and we should have contacted the support (we have contacted them previously when we signed up).

Their website is not clear and very misleading about their software, not stating clearly what is included and what is not in a package, and even have lied about their services (we have proof in our e-mails).

We were very disappointed and robbed, as we paid for something what it can not be used (you can not fully test it unless you purchase it), we will try to open a dispute with the credit card company as you mentioned above.

Thanks again!

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Vox

This post is very informative. I am finishing up our first eBook and wanted to offer a refund option, but was not sure if this was the best course. Based on the information you just shared, we have decided that we will indeed still offer a money-back guarantee! Thanks!

Reply

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