To offer a money-back guarantee or not to offer a money-back guarantee — that is the question.

A money-back guarantee can be a double-edged sword for small businesses. On one hand, a money-back guarantee could help you get customers in the door. On the other hand, a money-back guarantee could end up hurting your bottom line in the long run.

Why you may want to offer a money-back guarantee

Money-back guarantees can be beneficial in a few different ways. One advantage of a money-back guarantee is that it is a perceived benefit to a customer that could potentially push them into making a purchase or scheduling an appointment.

Whether a consumer is shopping online or looking for a local plumber to work with, trust plays a big role in whether or not they actually go through with the purchase or book an appointment. Offering a money-back guarantee can help to increase peace of mind and build trust.

Another way a money-back guarantee could benefit your business is the perceived increase in the quality of customer service. A money-back guarantee tells your customers that you are dedicated to their satisfaction 100% of the time.

Most businesses are already dedicated to customer satisfaction, and to serving their customers in the best possible way. Money-back guarantees help to reinforce that with customers.

Although many customer benefits associated with money-back guarantees are perceived, perception is reality, and it can have a real impact on trust, sales and customer loyalty.

Why you may want to re-think a money-back guarantee

If money-back guarantees help to get people in the door and increase sales, why wouldn’t every business want to offer one?

Here are a few ways a money-back guarantee could potentially hurt your business:

#1. It can damage your bottom line

Most small businesses are not backed by the Rockefellers. If too many of your customers take up your offer at a money-back guarantee and demand their money back, it could be devastating to your bottom line.

This is especially true if customers are returning large, expensive items or want their money back on costlier services. While it may be no big deal to replace a customer’s hamburger or tennis shoes, it becomes a lot more problematic when it’s their car or furnace that needs to be replaced.

While a money-back guarantee could potentially increase sales, it could also increase returns, which could absolutely impact your bottom line.

#2. It’s impossible to satisfy some people

Part of the problem with money-back guarantees is that they can often be vague, particularly if you don’t do a good job of detailing what is included or not. Satisfaction guarantees are often especially vague and difficult to define.

You can get everything right with a service or product — dot all the i’s, cross all the t’s — and provide the friendliest, most unforgettable customer experience, only to end up with a customer who is still not satisfied with the job.

Fortunately, most customers won’t hold you to impossible standards, but unfortunately, if you offer a satisfaction guarantee, the ones who do will often take advantage of it.

#3. It can attract the wrong kind of customers

Most consumers are honest people who have good intentions and just want to pay a fair price and get what they paid for. However, not all consumers are made equal, and when you have a money-back guarantee, you run the risk of attracting the wrong kind.

Some consumers will take advantage of anything and everything they can. If you give them an inch, they demand a mile. They’re the customers who cancel as soon as their free trial is over, return a dress after they’ve worn it out already or demand a replacement meal after they’ve already eaten the first.

Sometimes a money-back guarantee can attract consumers to your business who aren’t interested in working with you, just taking advantage of you.

#4. It can complicate accounting

Accounting can be a headache in and of itself for small business owners, and the last thing many of them need is to complicate matters further. Unfortunately, money-back guarantees often do just that.

Depending on the length of your guarantee, you may have to make adjustments to income documents and expense sheets from months back. You may also run into issues with credit card companies, which often don’t accept refunds after 90 days.

Due to the complications money-back guarantees can have on accounting, they can impact the accuracy of your bookkeeping, which can create major problems when it comes time to file your taxes.

#5. It can saddle you with used inventory

If you offer a money-back guarantee on your products, you may end up with a greater number of returns than you would have. That means that you’ll also end up with more used inventory, which can no longer be sold at full price.

It can be frustrating when someone returns something that’s, for all intents and purposes, still brand new. The box may be opened or the tag may have been ripped off, but it looks and functions like new.

Unfortunately, even products that are basically new cannot be sold for the same price after they’ve been returned. If you have lots of returns, it can leave you holding the short end of the stick.

In conclusion, the costs of money-back guarantees don’t always outweigh the benefits. However, whether or not a money-back guarantee will work for your business largely depends on what you’re offering and how you implement your guarantee.

For example, if you use certain sales methods, like online or catalog sales, you may be federally mandated to offer a 30-day money-back guarantee. But, for businesses that have the option, it pays to weigh the pros and cons when deciding what’s right for you.

If you want to boost sales for your business, there are better ways than offering a money-back guarantee.

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Originally published on 2/15/21