Why our Refund Rates being so High isn’t Alarming (or Terrible)

James Laws asked me last week for my “lifetime refund percentage” (over at Sprout Apps) so he could get a general feel for our industry. He briefly mentioned his percentage was sub-5% which gave me pause, my immediate reaction was to think I’m doing something wrong; even though (at the time) I didn’t know my numbers. Knowing SA’s refunds were much higher I dug into the numbers, creating a report of sales ¹ over the last 10 months ².

Wow, 13% of sales were refunds. I was expecting a high number (by comparison) but not by that much. Then I immediately noticed that it’s more like 16% (seen in the second chart) because I included Abandon/Failed. Oh my!

Digging a bit more I wanted to know what the refund % was based on sales value (not based on total sales). This way I could determine if  smaller purchases (which are less likely to be refunded) are skewing the percentages. Put another way, were refunds more of an issue with sales of Sprout Invoices or Help Scout Desk (which are $60+), or with add-ons.

The percentages above show that the refund rate is slightly worse with those more expensive purchases…which was no surprise. Still though., sigh.

What does this mean for revenue? Since there are percentages of percentages above, the numbers get a bit convoluted, so I wanted to see what percentage of revenue is refunded and found it’s slightly better than I thought…

This shows that with every $100k is sales, that I’m refunding 11%.

Why are my refund rates so high?

I think it’s a combination of the money back guarantee, how I market it as a selling point, and the use of a timed offer. A recent customer that recently received a refund noted:

“I probably should have tried the demo first…I was just meaning to do some light research yesterday (not buy) but the 25% discount timer got me. If it wasn’t for the discount timer I would have waited and tried the demo today before buying. But the 25% off plus the 30 day guarantee made me think “why not? Lets go for it”.

Here’s that special timed offer that we’re referring to. It’s something I offer to hesitant customers ³ onsite (and via email).

Knowing that this combination has exponentially increased sales for Sprout Apps last year I have no qualms with the refund rate being so high. I can convert customers better than visitors. Simply, a customer purchasing with the intent to trial the product will convert more than a visitor that demos before purchase.

I hope this doesn’t come off as deceptive marketing; To be completely honest, it’s slightly manipulative but not deceptive. Manipulative in the good way, since there are no downsides since I offer a 30-day MBG.

Obviously my goal is to convert visitors to customers, so that they can see the value of my products, and I can prove how awesome the support is. Things a website full of screenshots and text can’t do very well alone.

So that explains why refund rates are relatively high, now what I’m really worried about is the abandoned/failed purchases. This number is something that I’m going to work on decreasing over the next year, there’s no apparent reason for it to be that high. Although I first need to validate if this number is a concern since I’m already attempting to convert these to customers via Customer Segment, and abandoned/failed checkouts aren’t removed if they do end up purchasing later.

What’s your opinion?