• Should I offer refunds for my digital product?

    Should I offer refunds for my digital product?

    You’re selling an ebook or WordPress plugin or membership course, should you offer refunds?

    I believe you should.


    Well the first reason is that lots of other smart people are doing it.

    Perhaps they’re all completely horribly wrong but I doubt it.

    But why though? Are they just doing it out of fairness?

    Yes, that’s probably part of it.

    Assuming that we agree that all – or at least some – of the people linked to above are smart business savvy people though, perhaps there is another reason.

    Which is?

    Offering refunds for your digital product will make you more money, not less.

    Will you have to refund some people?

    Of course.

    But you’ll still make more money because more people will buy in the first place and there’s a pretty close to zero chance all those people will ask for refunds.

    An example

    Let’s take one example I saw today on Facebook for a WordPress plugin.

    The people that are commenting on the Facebook post are the perfect potential buyers for this product.

    First of all note their reactions to the no refund policy, which is displayed prominently in large red letters on the seller’s purchase page (not shown here).

    Screenshot of Facebook discussion about 'no refunds' policy

    Here are three people that have immediately ruled themselves out of buying this product because of the no refund policy.

    Given their stance it’s also probably pretty safe to assume that they won’t be telling any other people, meaning even more potential sales lost.

    That’s $375 in potential revenue gone from these three customers alone and that’s not even taking into account:

    • any additional revenue those customers might’ve generated by referring other people;
    • how many other people (in this highly targeted Facebook group) that will have read the same post and made the same decision without commenting.

    All in all we can agree that’s a lot of potential revenue immediately and, seemingly, permanently lost.

    But what if these people had bought and then ask for a refund?

    First of all we’re talking about a digital product here (and I believe there is still a strong case for many other types of products and services to offer refunds and make more money but that’s for another discussion).

    That means the product:

    • already exists (we’re not making one on spec for our customer);
    • costs nothing for our seller to duplicate;
    • and has zero or close to zero distribution costs.

    Taking support out of the equation for one moment, if you refund the customer what have you actually lost?

    A little bit of time? Maybe a credit card processing fee?

    I’m guessing you’d have to be hitting a refund rate of 90%+ for that to be a problem for you (and if your product is attracting that kind of refund rate you have bigger problems than losing sleep over a refund policy).

    Which means that all those ‘extra’ people that bought because of your refund policy (and we can see anecdotally from the image above just how much that refund policy means to people) and didn’t ask for a refund is all extra revenue for you. All for no extra work than any other paying customer.

    Aside: It’s the same maths as some companies offering affiliate marketers 75%+ of the revenue on sales of digital goods that the affiliates bring to them.

    They don’t care if they’re giving away 75% of the revenue if the affiliate brings them a customer they would never have got in the first place (of course you should make doubly sure your support numbers stack up in this case).

    But what about support?

    Assuming you are offering support though we need to take that in account.

    Not every customer will need support but support does costs time and money (putting aside the potential business benefit of having a closer ongoing relationship with a customer).

    What if you give three months or a year of support to a customer and then they ask for a refund?

    Depending on the financial model of your business you might take a hit, so how do you handle that?

    Simply put a time limit on refunds.

    AppSumo used to offer refunds for life. It got them a lot of attention and was probably a smart move. Now they offer a 60 day refund.

    StudioPress offers 30 days. Paul Jarvis offers 14 days in his Creative Class course.

    By limiting the amount of time that passes after which people can no longer request a refund, they’ve limited their support costs whilst ensuring that customers get a decent amount of time to try the product and the business get more sales because of the attractiveness of the refund policy.

    I know it might seem counterintuitive at first, but if you’re selling digital products and don’t have a refund policy the money you’re ‘saving’ in refunds is probably costing you way more in revenue lost.

    And if it’s your policy to want to get the maximum amount of revenue from your digital product business – while treating customers fairly – then a ‘no refund’ policy is probably not a policy you want to keep.