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.
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:
- Say it with me again… Refunds are an unavoidable fact of life.
- 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:
- Be honest with your website copy. Make sure your product delivers what it promises on the metaphorical box.
- Write clear, detailed product descriptions.
- Provide useful supporting documentation and answers to common FAQs.
- Make use of demo videos, samples, and free trials.
- 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?