Do you guarantee your work? Do you guarantee the products you sell? When prospects are shopping around for the product or service you offer, a money-back guarantee may be part of a long list of benefits, but there can be a downside, too. A money-back guarantee may be a boon or a bust. It’s not always the best solution.

The money-back guarantee is old school. The promise of a money-back guarantee if “you’re not 100% satisfied” has been around longer than Dr. Wizbang’s Medicine Show. Standing the test of time is an indication that many companies find the money-guarantee delivers many positives.

Here’s how Entrepreneur magazine defines a guarantee:1

“A pledge, usually in writing, given by a company to any customers that something is of specific quality, content, benefit, or that it will provide satisfaction or will perform or produce in a specified manner. A guarantee also outlines what will happen should the buyer not be satisfied with his purchase.”

Does your company pledge client or customer satisfaction? What are the pros and cons of a money back guarantee?

The Pros of Offering a Money-Back Guarantee

1. It removes a barrier in the sales process. It’s easier to make sales. A money-back guarantee may be the tipping point that converts a browser into a buyer.

2. What is the competition doing? If you’re the only business offering a customer-satisfaction guarantee, you set yourself apart from the herd. You stand behind your work.

3. Improves client retention and provides the opportunity to create a long-term customer or client. They didn’t like this item, but if you make them happy by refunding their purchase price or replacing the item, they may stick around long enough to find other items they love. A money-back guarantee can help keep a client or customer base stable.

4. Guaranteed trust builder. Repeat buyers don’t need to be sold on your company’s reliability or integrity. They’ve done business with you before.

The Cons of Offering a Money-Back Guarantee

1. You may attract rip-off customers. A customer buys a dress, wears it a few times, then returns it for a money-back guarantee. It happens, but all those business success stories that do offer a money-back guarantee indicate many more honest clients.

2. Your business accounting can get a lot more complicated. Your accountant may tell you that a sale can’t be recorded as a sale as long as the customer can still return the item for a full refund. Talk to your company’s CFO if you’re thinking of instituting a money-back-guarantee policy. They’ll provide the input you need to streamline operations and refunds.

3. You’ll have a lot more returns that may not be sold as new. If the packaging is opened, it’s not new. Plan how to deal with returns with online specials, “scratch-and-dent” sales, auction sites, local charities and community groups.

4. A return of a large item can crush your company cash flow. If your restaurant customers didn’t like the bisque, you can replace it and comp a couple of dinners. Your business can survive. On the other hand, if the item under warranty costs tens of thousands of dollars and that item is returned under your policy, it could really crimp cash flow. You may be required to maintain more cash on hand to protect from this kind of setback.

Talk to your CFO, or if you don’t have a CFO, talk to your company accountant to weigh the pros and cons of offering money-back guarantees.

  1. https://www.entrepreneur.com/encyclopedia/guarantees

 

​The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC