When I’m conducting testing campaigns or Conversion Rate Optimization (CRO) projects for my clients, one of the (many) metrics I always try and track is refund rates.

As I’ve discussed before on this blog, refund rates that are too low can actually be a sign that you’re not “selling hard enough” and are leaving money on the table.

However, refund rates that are too high can indicate one of 7 different problems.

1. Low Quality
The obvious problem a high refund rate indicates is potentially low product quality. If your refunds are high because of a low quality product the solution is simple.

Stop selling CRAP! If your product or service doesn’t add more value to the lives of your customer than the hard earned money they are paying you for it… You’re a thief! Stop it!

2. Poor Copy
Next to poor product quality, the second most common cause of a high refund rate is your copy. If your copy creates unrealistic or unclear expectations in your reader’s mind, when your product (regardless of quality) fails to meet those expectations, the result will be a refund request.

3. Untargeted Traffic
In addition to killing your conversion rates and wasting your marketing dollars, untargeted traffic can actually increase your refund rates. This is because even though the vast majority of your untargeted, low quality traffic will leave your site without buying, you’ll still probably sell a few of them.

The problem with selling a few of them is, if they were not in the market for your product or service before arriving at your site and they just bought on impulse or because your copy was so darn good, they will quickly begin to develop buyer’s remorse and regret the rash decision.

4. Poor Follow-Up
Refund requests can be greatly reduced with a simple email or phone call after the order, asking your customers about their experience and reminding them of the benefits your product offers.

This reduces buyer’s remorse, builds your relationship with your customer and even increases the lifetime value of that customer by making them more likely to buy from you again. (Particularly if you make them another related offer during the post sale follow-up!)

5. Weak Guarantee
Many businesses and marketers think a weak guarantee with a short return window and a ton of “weasel clauses” will reduce refunds. In most cases the opposite is true!

I’ve found that in most cases, the longer and stronger your guarantee or risk reversal, the LOWER your overall refund rates will be.

When a buyer only has 30 days (or even less) to evaluate your product, they are forced to make the keep vs. return decision right away. However, if you give them 6 months or a year to return the product, you’ll find that the psychological pressure to make a decision is removed and even those who intend to return the item will often procrastinate the decision (and then simply forget about the decision entirely.)

6. Low Quality Customers
Attracting low quality prospects can be one of the most costly and frustrating mistakes you can make in business. And a high refund rate is one warning sign that your sales funnel may be filled with the wrong kind of customers.

Selling to low quality customers usually costs you more money (and worse TIME) than they are worth. Your complaints, questions and customer service costs skyrocket. You get unwarranted chargebacks from buyers who are too lazy (or gutless) to request a refund and so they just initiate a chargeback.

And, you are more likely to attract the dirt bags and fraud artists who already know that they’ll be asking for a refund before they even place the order.

So how do you protect yourself from low quality customers? Keep reading…

7. Price Too Low*
Yep… If your price is too low, you will often attract the “low quality customers” I just warned you about.

In many cases, simply raising the price (and perceived value) of your product can screen out low quality customers and reduce your refund rates. Often significantly.

James Brausch talks about this in a recent blog post.

James says:

I’ve made that mistake twice in this business. The first time was with Artemis Pro. I increased the price from $53 to $105 and fixed the problem. The negative customers disappeared, sales increased and Clickbank refund rates went from 75% down to 3%.

I’ve made that same mistake again with RaSof. The current price is only $100/month. That price is drawing in tons of very poor customers. The refund request rate is once again at 75%.

… I’ll be raising the price to $1,000/month at noon tomorrow.

You can see the full blog post here:
http://www.jamesbrausch.com/?p=437

My own tests show similar results.

Here are the actual test results from a price test conducted last year for an information product targeting diabetics.

Control Price: $17
Test Price: $47

Control Conversion Rate ($17): 2.81%
Test Conversion Rate ($47): 2.47%

Control Visitor Value ($17): $0.48
Test Visitor value ($47): $1.16

$17 Price Refund Rate: 11.9%
$47 Price Refund Rate: 5.7%

As you can see, by increasing the price, conversions dropped slightly (often they stay the same or improve), but visitor value more than doubled, while the refund rate was cut in half.

So… If your refund rates are too high (and you know your product is a winner) test raising your prices and see what happens. You may be pleasantly surprised!

Happy testing!
Eric Graham

*Notice I did not say that “Price Too High” was a cause of high refunds. That’s because there is no such thing as a price that is “too high”. There are only products that don’t deliver enough value. If your customers are asking for refunds because the “price was too high” take another look at #1 on this list.

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This entry was posted on Thursday, February 15th, 2007 at 3:55 pm and is filed under Conversion Rate Improvement, Copywriting, Landing Page Conversion, Marketing, Multivariate Testing, Online Marketing, Online Merchandising, Split Testing, Testing and Tracking, Traffic Quality, Web Analytics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a comment, or trackback from your own site.
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