The owners of a self-help company called me in to consult with them. Their refunds were so high that they almost drove the company out of business.
When they brought me in, the owners were contemplating dropping three particular products from their line because of their high refund rates. However, those were products that I thought were really great. So instead of dropping the products, here is what we did…
We created a performance-based guarantee. A performance-based guarantee is a guarantee where buyers have to show they at least tried the product before obtaining a refund.
We knocked our returns down to 4.7% and the products became highly profitable as the initial purchasers had a strong desire to at least try the systems.
There are two caveats to using performance-based guarantees though.
First, some people will complain and want the refund without trying the product anyway. In these cases, you’re often better off just giving them the refund. Consider it a cost of doing business.
Secondly, the performance guarantee can reduce initial sales since it’s not perceived as being completely risk-free. However, in spite of the lower initial sales, you win in many ways: lower shipping costs; lower re-stocking costs; longer term customers.
If you know you have a good product, yet your refund rates are high, a performance guarantee may be just what you need.
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