Should we offer a money back guarantee? If so, how?


13

I'm starting a web site with another founder that proof reads university and college student's papers and essays. Users upload an essay and pay us then they get an edited of the paper back and a list of mistakes/improvements.

My question is this: assuming our service is actually good, should we offer a money back guarantee? Follow up questions:
Does this generally increase sales?

Would a lot of people ask for their money back just because they can?

Any good articles on this?

Has anyone done A/B testing of "with guarantee" vs "without guarantee"?

How should this be implemented? Online form? An email address?

Does anyone have good examples of sites using this as a selling point? (for design inspiration)

Marketing Selling

asked Dec 20 '09 at 10:26
Blank
Vindexus
126 points
  • This is not addressing your question - but how in the world is this going to scale? Yikes. A friend of mine did a resume reviewing site - and had great success - until they could not scale anymore. Companies like Monster anted to buy them, but realized there was no upside since it couldn't scale. – Tim J 9 years ago
  • Is this only for English-language papers? This would have been helpful when I took a German composition class. :) – James Black 9 years ago
  • @Tim Hire freelancers perhaps? – Olivier Lalonde 9 years ago
  • @olalonde - that still doesn't scale - how do you control quality and consistency? If it is meant to be small then perhaps it is do-able, but it is a real problem. – Tim J 9 years ago
  • @Tim Our current plans are to only market to our local university and then move out from there. We're currently working under the assumption that we should worry about scaling when we start to grow. – Vindexus 9 years ago
  • @Tim - I guess they would have to scale it like any traditional business. Charge enough for their services to hire more quality paper reviewers. Not a business model that is going to get you bought out or make you FU rich, but if the profits are there it could be a cushy lifestyle. – Ryan Doom 7 years ago
  • It sounds like a bad business idea to me. Most college students DO NOT have the money for this. It may make someone a few bucks, but this is not going to be a "cushy" lifestyle for anyone. To do a good job requires a certain education level and aptitude and people with that ability and the free time are generally going to be able to make more doing something OTHER than chasing money from a segment of the population that are notorious for having NO money. – Tim J 7 years ago

7 Answers


16

Offering a guarantee in a services business is tricky. When a product company offers a guarantee, the customer must return the product in order to get their money back. This ensures that the customer doesn't get the product for free just by exercising the guarantee.

But a services company that wants to offer a guarantee faces the risk that a customer will ask for their money back after receiving the service, and since there's no way to give the service back, the customer ends up getting it for free. To avoid this, most services companies don't offer a money-back guarantee. Instead, they offer a guarantee that provides value in some other way.

For example, at Blue Fish, we write custom software for Fortune 500 companies. Our guarantee is that once we release the software to our client, we will support it for free for three months, answering any questions and fixing any bugs that may be found during that time. Most other companies would charge by the hour for this (even for bug fixing), so our guarantee helps convince our clients that our software will be high quality, since bug fixing is on our dime.

In your company, my fear would be that students (who are often cash-poor) would abuse your guarantee and ask for their money back even if they were happy with the quality of the review. My recommendation would be to offer a free review of a second paper rather than offering to give them their money back. This way, if they are trying to take advantage of you, it doesn't cost you revenue. And your customer will get another opportunity to experience your great service, which increases the chance that they will become dependent on it and will continue to use you in the future.

If it were my company, I'd also limit the number of times per year that a single customer could exercise the guarantee.

answered Dec 20 '09 at 12:36
Blank
Michael Trafton
3,141 points
  • I think your guarantee at Blue Fish is quite innovative. Thanks for sharing it. – Dane 9 years ago
  • +1 on all this. – Jason 9 years ago
  • I poked around the Blue Fish site for a few minutes and didn't see info on the guarantee. Mind posting a direct link? – Coder Dennis 9 years ago
  • Dennis: I don't think we mention it on our site. We do all of our sales in person, and we usually talk about the guarantee in our sales presentations. – Michael Trafton 9 years ago

15

I disagree. If you're going to be paid via credit cards/paypal/etc., you already offer a money back guarantee - it's called a disputed sale or more commonly a chargeback. Any customer for at least 30 sometimes 60 days can dispute your charge. Most times they'll win too, and you'll get socked with a fee.

It' part of the price of doing business.

So turn it into a positive: Absolutely offer a refund. Have a link right there where they can email you. It's cheaper for you to cancel and order than for them to chargeback it to you. Also, money back guarantees build credibility.

answered Dec 21 '09 at 06:15
Blank
Bob Walsh
2,620 points
  • And the cost of disputing the charge would be far greater than the amount charged. – User1269 9 years ago
  • +1, and this is still true with a purchase order -- they'll just refuse to pay. – Jason 9 years ago
  • I agree. If you take credit cards, they already have a recourse for getting their money back. An added bonus to offering a refund option, when you process a refund, your reputation with the merchant provider isn't impacted. If people process a charge-back, it is. Too many charge-backs and your merchant fees may go up. I've provided money-back guarantees on products and on services, and it removes a big barrier to sales and makes it easier to buy from you. When you have to honour the refund it sucks, but it makes the customer WAY more likely to recommend you to others. – Joseph Fung 9 years ago
  • Even though I agree there is massive difference offering a refund and someone go to their bank to get a refund/chargeback. If you make comparison I bet at least there will be %50 more refund when you offer it. (again offering sounds more reasonable and I totally agree, I just want to point out the fact that your comparison is not correct) – The Dictator 9 years ago

6

The answer depends on what you are guaranteeing your customers.

Money back guarantees are effective when they give potential customers confidence that you'll do what you say. If the guarantee is something objective like you'll proof read their paper within 24 hours, then I think it's a good idea. It's a bad idea if you offer a subjective guarantee -- for instance that the student will be happy with your edits and suggestions. It opens the door for abuse and in this most cases, your customers will have some negative feelings about your criticism of their work. Do you want to refund everyone who doesn’t like your comments?

answered Dec 20 '09 at 13:03
Blank
Keith De Long
5,091 points
  • +1 for depends on what the guarantee is - is it for a specific grade? that of course is never going to fly. – Tim J 9 years ago

3

I agree with the two above posts, it is very difficult to offer a guarantee in the service industry. Keith has got a good suggestion, make the guarantee more specific to an aspect of your service. For example, I used to work for the Princeton Review, where we offered our students a money back guarantee if their score does not improve after taking one of the classes. However, you must attend all the sessions and do all the homework in order to be eligible. This ensures that the students did all the necessary work to improve. For your company, perhaps you could create stipulations that showed the students used your edits. For example, they could get their money back if they showed you that they used your edits but the teacher still found a lot of mistakes for the the aspects you were looking at.

Sounds like a great service, I do wonder about the scalability, but I am sure some thought and ingenuity will solve that!

answered Dec 21 '09 at 02:42
Blank
Jeff
154 points

0

So far I've seen a few websites providing online language courses that give you a money back guarantee, but only if you for example did their course, and didn't pass the exam the course was supposed to prepare you to. I think you could go a similar way and guarantee students money back if despite your corrections they didn't get a satisfactory or expected grade.
If you provided this kind of guarantee, I would suggest that you use an email address instead of an online form. An email is still more personal, and people won't overuse it as much as they would an online form. It's much easier to fill in a form and click the "money back" button than to write an email saying you're not pleased with the service (or even better, make a call).

answered Feb 9 '12 at 10:06
Blank
Lukeshek
452 points

0

A money back guarantee will help in securing more customers and building trust. So you can offer a money back with some conditions like
a) the person has to explain why he/she has not liked the job done by your company
b) If they are not happy you are willing to do again to keep them satisfied.
c) The complain should be made within 48 hours

@Jeff I liked your suggestion

@Vindexus A good idea and may be we can connect to cross sell with the new offerings of Skill-guru which are being rolled out in some time.
Please mail me at vinay[dot]singh@skill-guru.com

answered Dec 22 '09 at 03:40
Blank
Skillguru
344 points

0

Since your a new startup, I would suggest that you guarantee satisfaction by offering additional reviews/edits at no extra cost. You could put a limit on the number of re-reviews along with some basic conditions for resubmission. Full refunds perhaps down the road once you have a little more experience with the return habits and responses of your customers.

I do however, recommend that you pay attention to any unsatisfied customers to improve your service and innovate where necessary. Helping to solve their dissatisfaction while standing behind your service will pay big dividends down the road assuming market acceptance.

I always advise new entrepreneurs to first identify their customers and then define the benefits that they are willing to purchase. Certainly, a benefit that every customer wants is where the seller stands behind his or her's products/service.

P.S. Scaleability is a legitimate issue and should be addressed in your business model as it may impact your customer satisfaction index and your ability to protect margins.

answered Dec 22 '09 at 13:44
Blank
Tommy Jaye
231 points

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Marketing Selling