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Reflections on Refund Rates:
Marketing Minute Subscribers Weigh In

Copyright 2006 Marcia Yudkin. All rights reserved. 

The Issue Put Before Marketing Minute Subscribers

John Carlton writes: "A good marketer should be getting around 7%-to-15% refunds." According to this way of thinking, if hardly anyone is requesting refunds, you're "not selling hard enough." 

Although I understand the mathematical rationale for this concept, I couldn't tolerate even a 2% rate without a brain transplant. To me, a 7% rate would be an abomination. 

The thought of that many people who were unhappy with what they ordered, who expected something other than what they got, appalls me. How could it be a good thing to deliberately generate negative energy? Remember that for every refund request, others were equally unhappy but did not ask for their money back. 

And what kind of person doesn't care about the letdowns and disillusionment they are causing?

For me, successful marketing attracts exactly the people who want what I have to sell, persuades them to take the leap to buy and turns away those who represent a mismatch. 

If I'm leaving revenue on the table, so be it. My goal is to generate happy customers - and an honorable reputation.

The Overall Tally

Of 97 respondents to the message above, two disagreed with my point of view. Five people said, "It depends," and the remainder agreed with me (not counting some responses I wasn't sure how to classify). One conclusion I drew from the opinion spread is that I've obviously done a good job of attracting people to my newsletter who think the way I do! 

Even so, some very good points were made by those who disagreed with me and agreed with John Carlton as well as by those who said, "It depends."  So I'll start with those.

Comments From the John Carlton Camp 

"All refunds are not made up of Unhappy/Angry people. Your email seemed to imply they felt somehow tricked into buying. A large percentage of the refunds are by people who simply over bought. They got buyers remorse because they wanted the item but couldn't really afford it. Or their spouse felt so. I don't know but his definition of 'selling hard enough' to me means, if I feel the client would be better off with my product I have an obligation to see that they buy." - John M. Kane

"The 7% to 15% is not blatantly morally vacant.  The goal there is to collect everyone who might want your product.  In order to get *everyone*, you have to be willing to pick up people who don't really want your product.  Why?  Because they might not mind owning it.  Plenty of people buy things they never actually use.  How much do the unsatisfied people hurt you?  If you have a quality product, the expanded customer base may outweigh the unsatisfied customers.  Extra sales aside, they may improve your reputation with positive reviews." - Brendan Sechter

Comments Along the Lines of "It Depends" or "Maybe"

"I agree with both points of view: yours because 'actively' creating bad mojo can definitely do more harm than good, and John's because it truly does show that one is 'working it.'  Maybe John is working on the premise that this number includes people who were undecided and because of his offer and his guarantee - tried out his products. Then after safely experiencing the solution they discovered it wasn't quite for them so them took advantage of the refund policy - no harm, no foul. And frankly this open approach probably does more good than harm!  No true professional deliberately attempts to cram product into the hands of the unsuspecting public and John's approach allows them to experience the product safely. Refunds don't always mean 'You and your product suck!" - James Burchill

"A 7 - 15% refund ratio is fine if you are selling towels or TV's, but
once you get into the realms of very large ticket items - like a house,
a refund is unacceptable.  Making the customer happy and dealing with
their concerns is of utmost importance to getting those referrals.  That
becomes an issue of customer service not necessarily marketing." - Dee Reinhardt

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"It's complicated... Because IF he's profitable at 7% refunds...which isn't just about money, but about lots of people being happy with their products... And IF he continues to sell those people many more products down the line and keeps making them happy... Then he can rightly claim--and prove!--that he's making more people happy than you are.  On top of all this, if a refund is well executed, it can build good will because the marketer has kept his promise and made it easy for the person to
get his money back.. All this changes, however, if misleading promotions or poor products are causing refunds.  Then, of course, the marketer is wasting his own money and causing ill-will--and there's absolutely no reason, that I can see, to do this knowingly." - Peter Schwartz

"On today's topic I can see your point of view.  I am reminded, however, of a PR concept that states 'no news is bad news'.  Even if you have a client that did not fully enjoy what they received from you, they are now aware of it.  If they are one of the ones that did not request a refund then they have found it not worth the financial investment to take the time.  For those that did request a refund, there is still a percentage that
will pass on a positive impression that they got their money back,
thereby increasing your marketing reach beyond your personal efforts." - 
Nathan Norris

"From the angle of 'Hey, at least we marketed the product effectively,' I guess Carlton has a point. But like you, I'd rather be known for a quality product that most people continue to be happy with, rather than for my good hype strategies." - Heidi Tran

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Points From Those Who Agreed With Me

"A low refund rate means your copy is accurately and ethically representing what you are selling, and the product is of high quality. 
A high refund rate means either your copy is misleading or overpromising, or your product is not of high quality." - Bob Bly

"John Carlton is totally off base. You should be aiming for 0% refunds, and acceptable is <1%. Disappointing people should not be a marketing goal!" - Patti Pokorchak, Down to Earth Marketing

"Seven to 15%? Well, that explains why I've been getting unhappier and
unhappier with goods and services. More marketers must be reading Carlton, believing his message, and putting his advice into practice.  The better they 'do their job' the unhappier (and madder) I get. Carlton's message is about short-term greed and nothing else. If I'd bought his book I'd be requesting a refund." - Leslie Limon

"I get so tired of 'marketers' who have strong skills and weak ethics - who think that money and profit are the only measure. When I buy a product that ends up being half the quality of the sales letter, I may not request a refund, but I'll never buy from that person again. I don't forget that, and I don't forgive." - From sunny Japan, Charles Burke

"If you're selling 'As Seen On TV' products where embellishment is the norm, I would expect return rates that high.  In any reputable business, you hope to market your product to your target audience with enough clarity that the return rate stays below 2% and hopefully even below 1%." - W in Liberty, SC

"A good marketeer might get 15% refunds, but a GREAT marketeer will get NONE! Marketing is the process of aligning customers wants with your offerings. When you hype something or convince someone to buy something that they really do not need, that his not marketing, but hucksterism.  A huge amount of refunds not only takes time away from servicing customers who actually want to buy your products, but also creates a cheaping feeling of what your are selling is not what customers want. - Jeffrey Fry, CEO, Videodisgo, Inc.

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"'Selling hard enough': shouldn't we all be selling 'Well enough?'" - Lin Ticehurst

"I read somewhere once the art of marketing is 'selling goods that don't come back - to people that do'" - Simon Baggaley

"Some marketers 'sell'. That's the old push marketing. I believe in pull marketing (attracting, as you put it) rather than shoving products down somebody's throat and expecting 7-8% to throw up! Which one works better? Depends on what your objectives are. If making money is the *only* objective, go all out and push your wares to anyone who would listen. Otherwise, sleep well and let the genuine customers come to you." - Nadin Rath

"Good marketing pivots around intrinsic customer satisfaction. That,  in
turn, is only developed by knowing the customer's pain and satisfying it
with a valuable product. Once that is accomplished, you can offer
refunds for dissatisfied customers and there will be few takers unless
the dissatisfaction is due to your inability to deliver." - Jeffrey R. Orenstein, Ph.D., Publisher, Living Out East Magazine

"I see a return as a red-flag indicator that I did a poor job of marketing, because purchasers obviously anticipated something other than what they received.  Fortunately, it happens very rarely and I take a lesson away from it every time." - Meredith Hamilton, Expert Communications

"What some direct marketers seem to forget is life-time value of a customer/client plus the "goodwill" (good reputation etc.) that is an actual amount on a balance sheet." - Jane Hendry

"Why stop at 15%? Maybe Mr. Carlton isn't selling enough and should strive for a 15%-25% return rate. Would you want to shop at a store where you knew that, on average, you were going to return a purchase 10% of the time? I don't know about you, but if my shopping experience was so dismal I would be looking for another place to shop and would certainly let my friends know to avoid the high return store.†Mr. Carlton, I'm returning your theory as defective."†- Richard Brassaw

"When we're going for long term relationships with our customers, why would be want to make so many people upset with us? I've lost respect for a few "respected" online marketers because of the quality of their (expensive) e-books. Didn't ask for a refund, but sure wouldn't buy from them again. I call them the "$97 one-idea wonders." They sell the heck out of the stuff, but where's the repeat business? Not here." - Barbara Casey

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"Pushing sales until a refund threshold is reached seems the sort of short-term, profit-at-all-cost thinking that can suck the pride, if not the energy, out of a company in the longer term. In the broader, longer view, I would rather be part of a company that had a legitimate reason to be -- i.e., genuinely meeting needs and meeting them well -- than a company whose reason to exist was pulling money out of people who aren't likely to benefit from the product or service. I've taken to calling that sort 
of devotion to money and profit "enron thinking." - Steve Enersen

"A good marketer spends all of her time and energy targeting people who want what she has to sell. If she successfully reaches those people, refunds are virtually non-existant. If you have 15% refunds, you are either convincing folks to buy what they really don't want, in which case they will never truly be satisfied, or you are over-selling and under-delivering, and your credibility is suspect. Both of which will kill a marketing business." - LaVondilyn Watson, CEO, UPLIFT Publishing Co.

"Customers don't want the 'hard sell' -- Carlton (whoever he is) is WAY from the old school of marketing. Today's customers want honesty and integrity. Every customer relationship study ever done shows that a satisfied customer will tell 2 or 3 people about their good experience, but a dissatisfied customer will tell 10 people about their bad experience. How foolish to not care that hard sell tactics will exponentially increase the number of people who have a bad impression of you!" - Susan Rogers,
Editor, MediaLiteracy.com

"If more people had a 'customer satisfaction' mindset (rather than simply a 'customer gathering' mindset), there'd be a lot fewer problems in the business world... and the world in general.  Mr. Carlton's type of thinking is what had led the way for:
- computers calling so many millions of people - at dinnertime, no less! -
that it created the need for the Do Not Call Registry.
- potential customers not believing anything a salesperson has to say,
dropping salespeople's reputations across the board
- even more call reluctance on the part of salespeople, who must now
overcome a negative image before they even open their mouths."
- Sandy Geroux, Geroux Performance Group

2% refund is a disaster for us too! Someone is NOT doing their job with this many dissatisfied and disappointed customers. 100% happy customers returning each year and recommending our exceptional services to their friends is our goal. I wouldn't even think of devising a formula to include refunds. Never!" - Carla, Jolly Pirates, Aruba

"I sell specialty products to create a healthy lifestyle and sometimes these 'alternative' concepts create skepticism on the part of many people. Your statement made me realize that I'm only looking for the people willing to take the leap. The mismatched customer ends up being too high-maintenance anyway." - Diane Bays

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"In our offline business we strive for less than 2%. Any higher we would
completely review and revamp our marketing strategies, our list, the total
customer experience, the product/customer match, our competitive advantage and the offer. Refunds are not only cost ineffective but the bigger picture is maybe the products, or services, or your marketing approaches are inferior. From my own 36 year business experience this amount of refunds is a recipe for disaster if you plan on being in business for the long haul." - Joe Marquet, Proactive Marketing Solutions Inc.

"I agree with you, that it is my responsibility to communicate
effectively enough to help buyers make a decision that is truly in their
best interest, short term and long terms." - Alan Allard, Life Coach/Marketing Coach

"This attitude is one of the reasons that moved me to start my own company. I am always blown away when looking over company KPI's and seeing targeted amounts for refunds. I am very passionate about the work I do and the service I supply to my customers. In my business our standards are set for 100% customer satisfaction." - Katrina

"I can count on one hand the number of refunds we have had to give back to disgruntled or disappointed customers in the past few years. This is because we have clear marketing procedures in place that answer a prospect's questions ahead of the sale. Once sold, we take them through the next set of procedures--our production process-- so their expectations are in line with the signage we produce for them." - Paula A. Diaco, Sign*A*Rama

"If someone asks for a refund, I have either mis-sold the product or
mis-focused my energy... I want to DELIGHT everyone who buys from me,
anything less means I've got room for improvement, either in the details of my marketing, or in what I'm attracting through some other aspect of my thoughts/expectations. If a customer is not a good match for my product, I want them to buy something else from someone else, so they and their 'perfect vendor' can both be delighted. Happiness makes the world go round, and what goes around comes around, so we all win." - 
Stephanie Roberts Serrano

"Who's John Carlton? Want to make sure I don't buy anything from him..." - Jennifer Lynham

"In this day and age of marketing by the numbers, the one number that seems to be left out of the bottom line is the exponential power of the satisfied customer." - Janice Salomon

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"Most corporate direct mail marketers aim for a 1-5% conversion rate. If your returns are higher than your conversions, you simply aren't going to make any money." - Anonymous

"I found my heart sinking when I read Carlton's quote. My mind immediately thought, "I hope she's not endorsing this." I depend on a quality reputation for my marketing as it is almost 100% referral/network based. I couldn't sustain even a marginal percentage of disgruntled clients due to the fiscal impact it would cause, not to mention how I felt about the service I was providing." - Chris Barker

"I own an air conditioning business in southern Florida. I believe I have a 100% satisfactory rate to this point. I started my business because I was tired of hearing about the dissatisfied customers at previous employer. I now can sleep well at night and my business is growing so fast. I work too hard to get negative ads for dissatisfied customers. Increase satisfaction, Increase bottom line profits and customer comfort level in my business. Imagine That! PRIDE, SUCCESS, AND PROFIT" - Scott Camire, A/C Advantage Inc.

"I can't see how 'hard selling' to the point that you're driving unsatisfied buyers to request a refund, could possibly be good for your long-term business and customer loyalty.  Even if you cheerfully refund your clients' money, the last thing that will be on their mind is inevitably, 'She was courteous, but her product wasn't a good fit for me, and I had to go through the unpleasant extra step of asking for a refund.'" - Dina Giolitto
Head Copy Chick, Wordfeeder.com

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"At the end of a season the ski industry looks at a thing called Skier Visits for each area. That is the total of visits of all customers that purchase a lift ticket or season pass. Day tickets are an actual count and season pass holders are calculated on a percentage basis. Last season we did 350,000+ visits (a very good number for an area of our size especially in a poor snowfall year). We can't afford 24,500 customers (7%) looking for a refund. What they're really saying is we didn't like your product and probably won't be back.  Happy customers and honorable reputation, you bet." - Bruce McDonald, Wachusett Mountain

"We invest to build relationships. I don't have time or interest in creating disillusioned clients or explaining failures." - Michael Loschke, President, 
IMC Consulting & Training

"In my business dealings 2% refunds are acceptable... 5% is high... 7% is unacceptable and 15% will get you fired." - Angelo Medica, Sales Manager, ProMiles Canada Inc.

"When I began a marketing practice many years ago I used this as a foundation: 'One cannot scatter his fire and the same time hit the mark.' from "Science and Health" by Mary Baker Eddy p 457." -  Lori Biesterfeldt

"One never knows where trends start, or when one is seeing the first bright signs of a trend. But I hope your attitude is part of a sea change. We've have seen way too much avarice-as-virtue thinking for a few decades. How nice to be able to appreciate success with integrity, rather than in spite of it." - PG O'Brien

And Another Point to Consider

"Personally, I hate to have to return anything. That's why I'm never shy
about (sometimes repeatedly) asking pre-sales questions by email. If I never get responses to such legitimate questions that aren't covered in the sales copy, FAQs or other areas in a website, I SIMPLY REFUSE TO BUY FROM THAT VENDOR, no matter how curious or motivated I am to buy the product." - Guy LeSage

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Some Final Comments on Refund Rates

Let me make clear that I wasn't saying anything one way or another about the advisability or ethics of offering money-back guarantees.  It's pretty well established that this increases sales by removing the risk to the buyer of taking the leap and trying something.  

However, deliberately gunning for and planning for refunds is a very different strategy from making them possible.  While some people have a blasť attitude toward returning things, others get angry about having to do so and a few believe it's wrong to ask for their money back, no matter how dissatisfied they were.  I once had a prospective customer who insisted that it was against his religion to buy something and return it, and that's why he had quite a number of questions for me prior to buying.  

So it's safe to conclude that you're provoking some degree of unhappiness out there if you deliberately aim at a certain percentage of refunds.

I also think there might be a difference between the dynamics of refunds for products and for services.  Many of the people who vehemently rejected the idea that a significant rate of refunds was tolerable sell services.  Or maybe it's a matter of price rather than product versus service.  If each sale is $5,000 or more, could the average business really thrive with more than one fluky refund every few years?

Thanks to everyone who participated in this informal poll!

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