Refund Policies: What’s Fair and What’s Not For Online Businesses

“If you don’t see results, you didn’t want it bad enough.”

That’s become the prevailing narrative of the online business refund policy.

Of course, it’s nearly impossible to guarantee results. And there are reasons to remind customers and clients that, no matter what they’ve bought, they will have to put some time and effort into it.

But I see evidence of an increasingly adversarial relationship with customers all around the internet, in every type of business model, every field, and every kind of brand.

It’s as if online business owners believe that they’ve benevolently shared their secret wisdom or technique for the low, low price of $1997. Customers should just be grateful for the opportunity to pay them. If someone asks for a refund, well, they didn’t try hard enough, they’re conning you, they don’t understand how hard it is to be an entrepreneur…

The customer has become the enemy.

The philosophy of guarantees and refunds is just one part of a larger adversarial philosophy of small business. We seem to be looking for structural ways to justify that “the customer is always wrong.”

Today, I want to explore the origin of refunds, how early marketers (and I mean early) thought about them, and then offer some present-day analysis about why many business owners are quick to assume the worst about their potential or actual customers.

Plus, I’ll offer some ideas for new ways to think about your guarantees or refund policies.

Satisfaction guaranteed—or your money back!

Offering refunds or maintaining a return policy hasn’t always existed, right? Someone had to come up with the idea that you could reduce the friction of a transaction by telling the buyer that they could return the item if it didn’t work out.

I expected to find the genesis for the return policy at the beginning of the modern retail age—maybe in the 1940s or 50s. Maybe, I imagined, it might have started at the peak of the industrial revolution—maybe in the early 1800s, as consumer goods became easier to buy. But the actual origin of the return policy—and precisely the money-back guarantee? Well, it starts with pottery.

Sales and marketing as an art form

Josiah Wedgwood was born July 12, 1730, in England. Yes, “Wedgwood” like the staple of fancy department store bridal registries. Wedgwood was born into the pottery trade—his father, Thomas, was a potter, and his eldest brother, Thomas Wedgwood IV, took over the family business.

Early on, Josiah was a skilled potter—but as a boy, he survived a bout with smallpox that left him with a bum knee. He could no longer work the pedal of a potter’s wheel from then on. So he turned his attention to pottery design and quality improvement.

At 19, Josiah petitioned his brother Thomas to join the family business as a partner. His brother turned him down. Josiah wasn’t one to get discouraged, though. So he went off to work with other potters, eventually landing a partnership with Thomas Whieldon, where Josiah negotiated the opportunity to experiment with new materials and techniques. At the time, pottery for the home was like cheap Tupperware. You’d use it for a while, but you expected it to chip, crack, and quickly become unusable. It also wasn’t very nice looking. Josiah wanted to see if he could make something more durable and better-looking.

Josiah left Thomas Whieldon after five years to strike out on his own in 1759. And in 1762 met his friend and future business partner businessman Thomas Bentley. I know there are a lot of Thomases in this story…

Bentley would act as a critical connection to both industry and society for Josiah and the upstart business.

As the business got underway, Josiah’s main concern was quality.

He wanted to improve the quality of ceramics, develop production methods that ensured quality, and create quality designs using new glazes and techniques. He succeeded at all three. By 1763, the Wedgwood pottery company was receiving orders from aristocrats and high society in England, including Queen Charlotte, consort to King George III—who you might know as the king who told American revolutionaries something to the effect of, “You’ll be back.”

In 1765, Queen Charlotte dubbed Josiah “Potter to Her Majesty.” Josiah returned the favor by renaming his popular creamware, Queen’s Ware. A few years later, the Wedgwood company received an order of 952 pieces from none other than Catherine the Great in Russia. And here is where we can start to piece together the sales and marketing brilliance of Josiah Wedgwood.

One might think that Wedgwood’s products were able to gain such ubiquity due to efficient systems and low prices. Plenty of historians have made that assumption. But historian Neil McKendrick proves this false. Writing in an article for the Economic History Review, McKendrick explains:

[Wedgwood’s] goods were always considerably more expensive than those of his fellow potters: he regularly sold his goods at double the normal prices, not infrequently at three times as high, and he reduced them only when he wished to reap the rewards of bigger sales on a product that he had already made popular and fashionable at a high price, or when he thought the margin between his prices and those of the rest of the pottery had become too great.

Wedgwood continued to focus on quality over price—even as he sought to broaden the market for his goods. McKendrick continues, “[Wedgwood] did not charge his pottery at what it was worth but at what the nobility would pay for it.”

Wedgwood himself wrote that other potters were in quite a panic about the state of the market because of the low prices they’d set:

Low prices must beget a low quality in the manufacture, which will beget contempt, which will beget neglect and disuse, and there is an end of the trade.

Wedgwood vowed to remain above the fray by maintaining the quality of his manufacturing processes and the level of his prices, writing, “We must endeavour to make our goods better if possible—other people will be going worse, and thereby our distinction will be more evident.”

Wedgwood knew that the elite would continue to buy higher quality pottery and higher prices. But his vision for the business extended beyond high society. If he were to sell to a broader market, he needed to work on his sales and marketing techniques—it was the logical next step after having all but perfected the production process.

The first technique Wedgwood utilized we’ve already touched on: celebrity.

He had an innate sense for maximizing every PR opportunity he had. When creamware became Queen’s ware, he had an instant marketing slogan. When Catherine the Great ordered her set, he displayed it in his warehouse and sold tickets to view it! So despite earning almost no profit on the completely customized royal set, he was able to leverage it for massive profits on the backend. He produced consumer versions of pieces from that set to capitalize on the buzz. Any new design or color would trickle down quickly from the elites to the merchants to the general public. Wedgwood learned that he could maintain the company’s celebrity reputation by creating mass-market versions of the finer, most expensive pieces they sold.

Similarly, Wedgwood followed the arts and fashion markets so that he could design pottery that fit the prevailing trends. He and the company expertly balanced timeless quality with responsiveness to the market. A feat that few companies today are capable of despite access to TikTok and Google Analytics!

The next marketing technique Wedgwood pioneered was product placement.

He befriended artists and either outright commissioned paintings of his pottery or convinced them to include Wedgwood wares in the background of their portraits.

Wedgwood also opened a self-service retail store to cater to the broader market—a very unusual move at that time. It displayed both higher-end goods set apart to show them off and lower-end goods at easy reach to ease the buying process. He used “carefully stage-managed” exhibitions and product launches to maximize the impact of new collections. He pioneered free shipping, media strategy, direct marketing, and—the money-back guarantee.

In an article for The New York Times in 2009, Judith Flanders wrote of Josiah Wedgwood: “It wasn’t pleasure at past achievement, but instead determination to understand why success had come about, so he could build on it. Selling was an intellectual pleasure, an art form.” (emphasis added)

Selling was an intellectual pleasure, an art form.

I love this characterization. In all the research I did on Wedgwood, I didn’t find anything that made his sales or marketing techniques—including the money-back guarantee—manipulative. He seems to have simply taken pleasure in finding ways to put the best work he could in as many hands as possible. For some, that meant the finest one-of-a-kind commissioned pieces. For others, that meant providing efficiently made quality goods at lower prices.

Interestingly, Wedgwood also paid his labor force above average and would take a cut in profits to keep them working at full steam when the market was a bit slow. He knew it was good for the workers and good for the business. Wedgwood was also a prominent abolitionist in England, working actively to end slavery until his death in 1795.

From Neil McKendrick’s account of Wedgwood’s prowess with sales and marketing, Wedgwood did not view the customer as a mere target or, worse, as an adversary to outsmart. Wedgwood viewed his only quote-unquote enemy as competing pottery companies. And even then, he was able to work with them strategically.

Now that was a lot of story for one quick mention of money-back guarantees.

But it’s an important story to tell about the history of refunds and return policies because it establishes the policy as a 2-way relationship-building technique. Wedgwood’s money-back guarantee wasn’t some sort of get-of-jail-free card designed only to benefit the company. He knew that the quality of his goods could withstand the expectation of satisfaction, and he knew that accepting a return would make customers trust the company more, not less.

Further sales and marketing innovation

Another pioneer of the money-back guarantee was John Wanamaker, who started one of the first department stores in the US in 1861 and the department store chain that bore his name. Wanamaker built his stores on four core principles:

1. Set prices. Wanamaker pioneered the price tag and eliminated haggling so that all people would pay the same amount for a product regardless of class, race, or sex.
2. Cash only. Instead of offering shoppers credit, Wanamaker eliminated the risk of people defaulting on their payment plans.
3. Money-back guarantee. Wanamaker wanted to be known for standing by the quality of the goods his stores sold.
4. Cash back. Instead of offering store credit, Wanamaker ensured that since you paid cash, you’d get cash back if you needed to return an item.

Like Wedgwood, Wanamaker was focused on building a relationship of trust with shoppers. They both transferred risk from the buyer to the seller to make it easy for people to say “yes” to a purchase.

That’s the philosophical basis of any money-back guarantee or refund policy—or it should be.

A world without refunds? Unthinkable!

Today, we take return policies for granted whether we’re shopping in brick & mortar stores or online. Direct to consumer retail brands have utilized exceptionally generous return policies to entice shoppers to give them a try. For example, Casper offers a 100-night Risk-Free trial on its mattresses, or Athleta offers a “give-it-a-workout” guarantee on its clothing.

Return policies and money-back guarantees started as a way to build trust with customers and transfer risk from buyer to seller—as we saw with Josiah Wedgwood and John Wanamaker. Today, though, return policies are part of a strategic shift in understanding the buyer’s journey.

Typically, we think of the buyer’s journey in terms of discovery, evaluation, and purchase. Maybe you find a brand via an ad, poke around on their website for a while, do some research, and then decide to make an order. You might also include post-purchase follow-up, repeat purchase, or referring friends as part of the journey.

In an article for the Journal of Retailing, researchers assert that not considering returns or refunds as an integral part of the buyer’s journey is a missed opportunity for marketers. They write:

Increasingly, product returns are a major part of the customer journey. Returns can facilitate cycling back to earlier stages in the journey, or can become part of the story—positive or negative—that the customer later tells friends or posts to review apps.

Again, direct-to-consumer brands pioneered new approaches to return policies. Warby Parker and StitchFix make returns part of how the customer interacts with the company. They incentivize trying things out and make returning unwanted items as easy as possible. Warby Parker will send you a box of frames for you to try on in the comfort of your home—absolutely free. StitchFix will send you a package of clothing for a small “styling fee”—pay for and keep what you like, and return anything you don’t want. Patagonia, Zappos, and Running Warehouse have incredibly generous return policies that act as a safety net for buying things online that once might have been an in-store-only kind of purchase.

So how does a brand decide on its return policy?

The researchers cite two types of return system errors that can help us conceive of how to construct a return policy:

The first type of error rewards returns to claims that don’t justify a refund. For instance, I buy a dress for a big meeting. I tuck the tags away and wear the dress for the meeting. I then return the dress to the store and get my money back. To be clear, I am much too much of a rule follower to do this!

The second type of error denies returns to claims that do justify a refund. In this case, I buy a lawnmower. The next day, I go to mow the lawn, and the mower stops working when I’m only halfway through. I take it back to the store because it’s defective, but the store won’t give me a refund because they claim that I broke it, when that’s not the case.

Ideally, a return policy should balance these two types of errors. We want to prevent giving unjustified refunds as much as possible. But we also want to ensure that we don’t anger customers by denying refunds for genuine reasons. However, what’s ideal isn’t always operationally feasible. And so return policies tend to skew either toward type one errors or type two errors. Either you end up giving some refunds that weren’t justified more often, or you end up denying some refunds that were justified more often. According to the researchers, stores should consider how their returns policy will skew relative to their marketing strategies.

The way I see it, any marketing strategy that casts a wide net, where purchases happen fast with the pressure of urgency, requires a return policy that skews heavily toward offering refunds, even if they’re not always justified. A meticulous, slow, and personal marketing (or sales) strategy can skew toward the more cautious approach. While most online service businesses would do well with a stricter policy, online course and digital product businesses—especially those supported by affiliate marketing, deadline funnels, or launches, should skew toward a lenient one.

However, that is rarely the case in reality.

Want a refund? Tough luck.

So far, we’ve established that return policies and money-back guarantees show that the seller stands by the product they sell. They transfer risk from the buyer to the seller. And they can be seen as a vital trust-building component of the buyer’s journey. Return policies and money-back guarantees can be seen as much as marketing as they are customer support or legal guidelines.

If all that is true, what the hell is going on with refund policies in the online business space?

I want to acknowledge that I’m mostly talking about businesses that sell digital products— ebooks, online courses, templates, etc.—rather than services. But even if you’re a service provider, I think there will be something here that helps you think about your own business’s policies.

Here is a disclaimer that seems to appear on millions of web pages — at least according to a quick Google search:

YOUR SUCCESS DEPENDS ENTIRELY ON YOUR OWN EFFORT, MOTIVATION, COMMITMENT, AND FOLLOW-THROUGH. WE CAN NOT PREDICT, AND WE DO NOT GUARANTEE THAT YOU WILL ATTAIN A PARTICULAR RESULT, AND YOU ACCEPT AND UNDERSTAND THAT RESULTS DIFFER FOR EACH INDIVIDUAL. EACH INDIVIDUAL’S RESULTS DEPEND ON HIS OR HER UNIQUE BACKGROUND, DEDICATION, DESIRE, MOTIVATION, ACTIONS, AND NUMEROUS OTHER FACTORS.

While these lines are from an earnings disclaimer rather than a refund policy, they form the justification for incredibly strict refund policies.

Here’s one such policy:

Company follows a ‘Do The Work’ Refund Policy, which means Client must include ALL required, completed coursework with any request for a refund. If Client requests a refund and does not include all required coursework within ninety (90) days of enrollment, Client’s refund will not be accepted. All refunds are under the sole discretion of the Company. We are about honesty, fairness, and customer satisfaction. We have no problem issuing a full refund if you’ve actually tried your best and done the work, but the course was not fitting for your business and/or business goals.

Okay, I want to be gentle yet firm here.

Being asked for a refund sucks.

Just thinking about it makes me want to cry—seriously. When someone asks for a refund, it feels like they’re saying “you suck” and trying to take food out of your kid’s mouth simultaneously.

I put a ton of work into the products I’ve sold over the years. I stood by them all. And every refund request I received was like a stab through the heart.

So I genuinely understand trying to guard your business—and let’s be honest, guard ourselves—against refund requests. But between the disclaimer I read first and the refund policy I shared after, this is inhumane treatment of our customers.

I asked Regina Anaejionu, founder of Online Outlier, about her take on this kind of refund policy. She told me that she believes ego and self-importance conflict with running a humanized business. Both Regina and I have had the experience of messing up relationships or communication thanks to allowing ego and self-importance to get in the way.

Regina also told me about an article she read years ago that’s stuck with her all this time. The article involved a very influential online business educator who realized that 20% of their customers were asking for a refund. The influencer explained how they reduced their refund requests from 20% to just 3% in the article. The article didn’t explain how the influencer made the program better, more accessible, or more supported. Instead, it listed—and recommended—various marketing and communication techniques that would make it harder or more stigmatizing to ask for a refund. “It really made me so upset that there wasn’t a lot of like, ‘oh, let’s take personal responsibility. Let’s figure out how we can build a better program,’” Regina told me. “It just didn’t seem like there was any kind of personal responsibility. It’s all ‘we’re going to make it harder for the customer.’”

What if retailers operated like online course creators?

Imagine if J. Crew required you to submit pictures of yourself in the pants you wanted to return. Pictures with at least three pairs of shoes and three different tops—just to prove that you tried your best to make the pants work, but they just don’t.

Or imagine if Amazon required you to submit a book report on the main points of the book you wanted to return and a thorough analysis of why it wasn’t a good fit for you.

Or what if The Gap told you that you couldn’t return the shirt you purchased because it’s not the size of the shirt that’s the problem, but rather the size of your body?

Look, these are ludicrous examples. You wouldn’t stand for it. You probably wouldn’t even shop with a brand that had even remotely similar policies. Yet, thousands of small businesses have refund policies precisely like this.

And here’s the thing: those retail companies incur significant costs when you make a return. They have to have staff available to accept and process the return. They also have to repackage and restock the item if they can even sell it again. Online businesses do not have these expenses, while profit margins before advertising costs might be 80% or 90%. All a refund requires is a polite email response, and a click or two of a button in whatever shopping cart software is being used.

“I think to ask a grown-up to do their homework in front of you … makes sure the power dynamic is in your favor. And it puts the paying customer in a position where they have to work hard to prove to you their own thoughts, observations, and feelings about your product [are valid],” Regina noted with frustration. Reading through online business refund policies might give you the impression that people seeking new knowledge are lazy, foolish fraudsters.

Here’s a small sampling of what one business requires to process a refund:

• Proof of a worksheet completion rate of at least 50%
• Screenshots of at least six different activities
• Proof of active participation, initiative, and responsiveness in the private Facebook community
• A progress rate of at least 50% within the member portal
• Screenshots and proof of an effort to ask questions when experiencing challenges during the program
• A minimum one-page write-up on the top 3 lessons learned from the program and an acceptable reason for why the customer thinks the program didn’t work for their particular needs.

Even after submitting all of that, the refund policy states that granting the refund is at the company’s sole discretion.

Not only is this paternalistic, demeaning, and disrespectful to the customer, but it also creates an incredible operational strain on the business.

How much time does it take to vet all of those documents? How much emotional labor is required in the process? How does a policy like this benefit anyone or the company?

I’d like to tell you that this is just an extreme example of the type of refund policies out there today. But it’s not. Are there less egregious examples that are still problematic? Sure. There are also plenty that are just bad as this one.

So what’s going on here?

Why would a business owner ascribe to such a policy? Why might you?

I know that there is an instinctual drive to want to protect yourself and what you’ve created. That’s fair.

But I also believe that one of the big reasons we see these policies pop up is that marketers want to be able to maximize sales by claiming to offer a money-back guarantee a la Wedgwood or Wanamaker but don’t want to follow through on it. They want all the upside of slapping that risk-free badge on their sales page—and none of the downside of actually issuing the returns.

If a genuine money-back guarantee transfers risk from the buyer to the seller, this type of policy transfers any risk the seller has to the buyer—while the seller tells the buyer the exact opposite.

Owning a business and putting your creative work out into the world for sale is risky.

There is no way around that. Couple that with the existential risk business owners in the US face with a lack of safety net and social support, and it can indeed be terrifying. However, it’s never been less financially risky to go into business for yourself than it is today. It doesn’t take a massive bank loan. You aren’t required to sign a 5-year lease for a storefront. You can do it while holding on to a full-time job if you’re so inclined. Again, there are real risks, often felt unequally across different identities. But I believe there’s plenty of room to take on more risk in an individual transaction, especially if you sell an online course or other digital product.

Is the customer a friend? Or a foe?

In 1603, a man sued a merchant for selling him an inauthentic bezoar stone. A bezoar stone is a hard mass that forms in the gastrointestinal tract of animals. At that time, it was thought to have magical healing powers. The stone that the man purchased was neither a bezoar stone nor did it possess healing powers—so the man believed he was entitled to his money back.

The court case, known as Chandelor v Lopus was argued before the Exchequer Court in England. The court found that the man was not entitled to his money back because it was up to him to determine the product’s authenticity before he purchased it. The seller could only be found liable if he knowingly sold a fraudulent product or if the seller had explicitly guaranteed that it was authentic, regardless of the seller’s foreknowledge. Chandelor v Lopus established the familiar precedent: caveat emptor. Let the buyer beware.

Caveat emptor positions the responsibility—and therefore the risk—of a transaction on the buyer. The buyer should expect that some sellers are trying to pull one over on them—and so the buyer should thoroughly vet what they are buying for themselves and assume the risk that they might get conned. “Buyer beware” remained the prevailing attitude of sales until the 19th century when, at least in the US, contract law started to recognize “implied warranty.” Implied warranty simply means that sellers make an implicit assurance that what they’re offering is worthy of sale and fit for use.

The tables turned dramatically, though, around the turn of the 20th century. That’s when department store tycoons like Harry Gordon Selfridge, Marshall Field, and our friend John Wanamaker started to push the idea that the “customer is always right.” Like Wanamaker’s insistence on equal set pricing, “the customer is always right” was a complete 180 from the retail culture at the time.

So what is the best policy?

Is the customer always right? Or should the buyer always beware?

An article in The Merck Report of June 1915 took on precisely this question:

From the ‘caveat emptor’ policy, the policy of ‘let the buyer beware,’ retail merchandising methods have swung around until nowadays it seems to be almost the universal custom to follow the motto, ‘the customer is always right,’ quoting Marshall Field as the supreme authority for the modern attitude.

It has been assumed right off the reel that because the old policy was wrong, the new one must always be right, and from one extreme the management of most drug stores, from the smallest independent store to the biggest chain store, have jumped to the opposite extreme. But we all know that the customer is not always right. The ideal, the actual truth, is to be found somewhere between the two extremes.

The author continues: “It is one of the paradoxes of modern methods that we pay the kicker for kicking and charge the good-natured customer for being good-natured.”

I agree with the author in the Merck Report—the customer is not always right. The buyer should be expected to do their due diligence, and a business that’s run to one extreme or another will almost inevitably fail.

Many of the concerns about being generous with refunds that I’ve heard over the years are about the potential to be scammed.

Business owners worry about people stealing their intellectual property or requesting a refund after learning what they need to know from a product. These fears reveal a foundational quandary for any business owner: do you believe more people are fundamentally good and honest or that more people are fundamentally dishonest?

Or, as business ethicist Chris MacDonald put it, “Is the relationship between buyer and seller appropriately thought of as an adversarial one or a cooperative one? Ethically, is it right for a company to think of customers as friends or foes?”

The answer to that question will form the basis of your refund policy, whether you know it or not. If you operate under the assumption that a large portion of the population is dishonest, you’ll craft a protectionist refund policy. If you believe that most people are honest, you’ll craft a generous refund policy. Despite the distinct trend toward generous retail return policies I mentioned earlier, the opposite direction is also prevalent, especially among technology companies.

Writing for the MIT Technology Review, Michael Schrage describes the strategy of many companies to “constrain, curtail, confine, and control” buyers or users. Instead of technology enabling greater choice or personal control, the opposite has happened in the name of data and profit. Schrage writes, “People procuring innovative products and services are discovering that their ability to pay matters far less than their willingness to behave the way vendors want.” Now—for a quick reality check. Schrage wrote this article in 2003. Over the last twenty years, his analysis has become only more accurate.

This same strategy of control is found in many online businesses’ refund policies.

These policies imagine a world in which all buyers have the same circumstances as the seller—the appropriate amount of time, the proper access to people or money, and the same eye for opportunity. If those same circumstances don’t exist (and they never do), then the seller requires the buyer to work toward those circumstances. If the buyer doesn’t—or can’t—then it simply isn’t the seller’s fault if the product doesn’t work, it isn’t accessible to different learning styles, or the buyer’s kid gets sick and can no longer make time to complete the course.

Regina argues that these policies often go so far as to create an “unsafe, unsettling environment for customers” and points to the variety of people who may not be able to benefit from a program that isn’t designed with their resources, differences, or learning styles in mind.

The policies we’re talking about here are “tough luck” refund policies.

They assume an adversarial relationship with a dishonest (or lazy) customer.

These policies have no interest in accounting for the uncertain and often openly hostile world we live in. They have no interest in changing family needs, a lack of accessibility, a different learning style, or the structural inequities that so many buyers face.

A tough luck refund policy is incompatible with running a justice-oriented, inclusive business.

Now, I get it: there are dishonest customers out there. Retail stores deal with this daily. And I think we can learn quite a bit from how they approach the task.

In retail operations, it’s called “loss prevention.” Loss prevention concerns any kind of preventable loss—or shrinkage—in a business: return fraud, theft, timesheet fraud, etc. The cost of shrink isn’t only the cost of the product in question. The price of shrink also includes time spent actively dealing with the situations in which shrink occurs and not dealing with whatever the other priorities for the business are. And so, a company is always asking: how do we balance the cost of our time and attention against the cost of loss?

In other words, there is an opportunity cost in dealing with a refund process. If you’re spending an hour trying to figure out if a refund request is fraudulent, that’s an hour you could be doing something else.

Some loss is acceptable if time and attention are put toward generating profit elsewhere. A retail business will establish a budget for shrink (say, 1% of total sales). So if a store does $1 million per year in sales, it budgets about $10,000 lost to shrinkage. If a store comes in under that, awesome. But they don’t worry about loss operationally until it crosses that threshold: If a store is below 1% shrinkage, without security guards at the front doors and extra staff to keep an eye on customers, it doesn’t need security guards or additional staff. If it’s below 1% without a strict return policy, it doesn’t need to implement a strict return policy. The store simply accepts that 1% loss as a cost of doing business.

I think we can use the idea of loss prevention and shrink to think about refunds and other policies which govern purchasing in online businesses. Let’s say you have a workbook for sale. It’s a PDF download. You might worry about people sharing it with their friends or downloading it and selling it themselves to undercut your business. One way to handle that is to create a bunch of hoops for buyers to go through to access their purchases. You also put a bunch of hoops between unhappy customers and a refund. You’ve got your workbook locked down—the security guards are ready to tackle anyone who looks shady.

But what percentage of buyers do you believe are dishonest? Let’s say it’s 1%—to borrow a number from the retail industry. Frankly, I think that’s way high. But we’ll go with it.

That means that every 100 times your workbook sells, it sells one time to a dishonest buyer who shares it with a friend. If the workbook is $20, you’ve missed out on one $20 sale. So instead of $2,020 you could have earned as a result of 101 people accessing the workbook, you’ve made $2000. Even if we look at more expensive online courses, the math is the same. If you’ve sold a $1000 online course to 100 people and 1 of them shares their log-in information with a friend, you make $100,000 instead of $101,000.

And so the question becomes, how much more work does it take to prevent that 1% loss? And is it worth that amount of money? Further, if the precautions you put in place make it harder for people to buy or damage your brand’s reputation, are you losing out on more than that 1% because you’ve forced lower sales numbers? Further still, is the emotional cost of fighting a refund request higher than the cost of actually providing the refund?

Now, don’t get me wrong: I understand that just about every situation is more complicated than that. But, I also believe that most cases are less complex than business owners imagine them to be. It’s often helpful to boil things down to simple numbers to see what kind of financial impact we’re talking about.

The fear and anxiety of loss can be much bigger than the loss itself.

Which brings us back to MacDonald’s question: “Is the relationship between buyer and seller appropriately thought of as an adversarial one or a cooperative one? Ethically, is it right for a company to think of customers as friends or foes?” Or, do you want to operate your business as if every customer is a potential fraudster? Or do you want to run it with the fundamental assumption that customers are honest and mean well?

Toward More Fair & Just Refund Policies

So what’s the alternative? How do we move forward with refund policies that support inclusivity?

I have some thoughts. Before I get into it, I want to clarify again that I’m mostly speaking about digital products, memberships, and courses—not 1:1 service-based businesses. Service-based businesses should have flexible policies around refunds or work stoppages, but the options aren’t as cut and dry as I believe they are for leveraged offers.

First, business finances should be managed to ensure that refunds are never a matter of paying the bills or not.

Ideally, you want to be able to get a refund request, shrug and say, “that sucks,” and then click a button to send back their money without batting an eye.

If all of the revenue you’re generating in your business goes to paying your bills, digital products are probably not the model for you—at least not yet. Services, which are inherently less “returnable,” will quickly provide you with a lot more and a lot steadier income.

Before you launch a digital product, you should have the financial runway to make revenue generated by that product “hands-off” for whatever refund policy you have. That means you don’t need the money from that launch until after the refund policy period has passed. I often hear that people can’t “afford” to offer refunds, but that should be a clue that the business model you’re trying to operate isn’t suitable for your current situation or that your pricing strategy is off.

Does the business model you currently use allow you to offer refunds on digital products without financial hesitation? If not, how could you generate a steady, predictable stream of revenue to alleviate that anxiety?

Second, we need to normalize refunds.

It might seem like a radical idea. But refunds are a normal part of doing business. We expect the chance to return a product for just about any reason given some basic guidelines. Our customers come to us with the same expectation. Just because we’re a business of one or a few doesn’t change that fact—nor should it.

Now, I understand that someone asking for a refund feels like a personal affront. It hurts. So I think normalizing refunds also requires us to find ways to take the sting out of it.

When I was running the What Works Network, we experimented with several refund policies and guarantees. Where we landed was that you could request a refund within the first 30 days for any reason. And we stated up front that we knew The Network wasn’t the right fit for everyone’s learning style, work schedule, or strategy. And that a new member might not realize that until they gave it a try. With that policy in place, a refund request wasn’t about how bad the product was or how deficient I was as a person. A refund request was just an acknowledgment that it wasn’t right for the member.

We were also proactive in trying to help people determine whether The Network was a good fit for them. We had a hands-on onboarding process—which means it cost us labor to get a new member up to speed. That was “shrink” if a new member then requested a refund. But the hands-on process turned new members into highly engaged, active members quickly and significantly reduced refund requests. So taking the bet on that cost was more than worth it for us.

Publicist Dana Kaye told me about how she’s normalizing refunds in a fun way. She developed the 28-Day PR Challenge to help authors launch a book publicity campaign. The challenge costs $129. She wanted people who bought the program to do the program so that they could experience fast results. So Dana got creative and decided to refund anyone who completed the program and secured media coverage. She sends everyone a form to fill out and then refunds all participants who land coverage. Financially, this makes sense for Dana because anyone who experiences results like that is bound to want more of what she’s offering. And heck, it’s hard to be upset about refunds that are due to customer success!

How could you normalize refunds in your own business? How can you tell a different story about why someone might request a refund?

Third, granting refunds should be fast and easy.

Fighting a refund request costs money, time, and emotional labor. In other words, not offering easy refunds is expensive.

As I was researching this episode, I started to think about what a self-service refund process might look like. When you have to return something to Amazon, there’s an automated process from request to shipping to refund. What would it be like to offer something similar?

That’s a thought experiment—not a recommendation, by the way.

Let’s say you’re selling that $20 workbook we looked at earlier. It can be a huge lead generator for your larger product. So you want as many people to give it a go as possible, knowing that it might not be suitable for everyone. Imagine if people could pay for the workbook, download it, give it a try, and then, if it wasn’t the right thing for them, fill out a simple form that starts an automation for a completely hands-off self-service refund.

Does this create the potential for more fraud? Sure. But it also creates the potential for significantly more leads and conversion to a more extensive (and expensive) offer. And it could help you build a radically trustworthy brand.

Again, offering self-service refunds isn’t a recommendation. It’s a thought experiment. Although, if you try it or you’ve already done it, I’d love to hear how it went!

The first three recommendations around refunds all lead up to the fourth:

Self-love, self-acceptance, and confident detachment

A refund request is not a referendum on your self-worth, expertise, or creative work. It’s also not a symbol of the customer’s self-worth, commitment, or hustle.

Refund requests happen for all sorts of good reasons: schedule changes, responsibility changes, an unexpected move, a dream job offer, a significant financial need… Many “tough luck” refund policies explicitly disqualify refunds for any of these reasons. And since women and people of color are more likely to respond to changes like this, these refund policies disproportionately disadvantage them.

Managing your business finances to allow for refunds of this kind is an act of self-love, self-acceptance, and confident detachment. It’s also more inclusive of the diverse experiences of your customers.

Offering refunds quickly & easily without having to “prove” anything is also an act of self-love and confident detachment. And it destigmatizes the requesting a refund for a variety of reasons so that the customer doesn’t feel like it’s a personal failing on their part.

This is what I want to leave you with:

How you manage your refund policy says everything about how you see your customers.

Are they wallets, or are they people? Do they deal with circumstances outside their control, or are they lazy? Are they dishonest fraudsters just waiting to get something for free, or are they honest people taking a bit of a risk in buying from you?

Decide whether the customer is a partner or an enemy. Decide on the relationship you want to have with them as people.

Your refund policy will become crystal clear.