Should I refund my customer?

A woman walks into a newsagent just near her place of work. She goes there every morning and picks up a bag of crisps, a chocolate bar, and an energy drink. If it’s a particularly rough day she’s having, she might go back and buy another energy drink a bit later.

One morning, she walks in and there’s a new hot drinks dispensing machine installed. Amongst its impressive range, she finds tea, coffee, hot chocolate, and a seemingly very tasty Ainsley Harriot Cream of Garden Vegetable soup option. She puts her £1 in and presses the wrong button and a strangely froth-less Hot Chocolate fills her cup instead.

Horrified, she goes to her trusted newsagent and asks if she can exchange it for nice, warming, soothing cupful of Ainsley’s hand-crafted (in a mass production factory) delicious soup.

Now, you’re on the spot. What would you do?

Refunding customers - lifetime value

If you say “no”, will this customer ever come back?

Will she take such umbridge at your refusal to acquiesce to her seemingly-reasonable request that you’ll now sell five fewer bags of crisps, five fewer chocolate bars, and up to 10 fewer energy drinks a week as she is now boycotting your store?

It’s important to think about the lifetime value of any of your customers. If yours is like most businesses, there’s a hardcore of customers who will make a significant contribution to both your turnover (great for cashflow) and profit (great for taking money home).

In this case, we’d argue that you should allow your customer to have her cup of Ainsley’s mouth-watering broth and reward yourself the hot chocolate she mistakenly dispensed for recognising the lifetime value of your customer.

Refunding customers - refunding the ne'er-be-pleased

That’s all well and good. But what if the customer you deal with hassles you so much that a) you hate picking the phone up to them, and b) you don’t get that satisfaction from helping them like you do the other customers?

Our customers with direct sales department tell us about something they call the “inverse law of sales”. Basically, it says that the customers who place the lowest order values give you the most grief. It makes sense. If they can only afford a small amount with you, they’ll want to try to maximise the gains or savings they make with you. And they won’t let you off the hook until they have satisfaction.

There is another rule though. “Your business, your choice”. If someone really is a complete pain in the neck and you can feel that customer’s presence starting to damage the enjoyment you and your colleagues get from your business, give them their money back and kick them to the kerb.

Remember, you’re in control of who you sell to just as much as a customer is in control of who he or she buys from.

Refunding customers - the internet

For anyone reading this article over the age of 35, there is something far more important to consider when thinking about refunding in general. And that’s the internet.

In the days before we were all online, a lot of business was done by word-of-mouth. Someone would recommend a restaurant or a supplier to his or her friends who would then go on to try it themselves. Of course, the same happened in reverse. People often bad-mouthed businesses which would make the people they bad-mouthed it to less likely to visit.

There was an old saying that a person who has had a bad experience with a business is seven times more likely to tell other people about it than another person who had a good experience.

The internet and search engines have changed all that.

There now exists countless websites where consumers are invited to leave an opinion about their experience with a business. It’s not just consumer-facing companies, there are plenty out there full of reviews of B2B firms too.

The way the internet is structured means that the sites that carry the reviews of businesses like yours feature very heavily in the rankings. More often than not, if a business searches its own name, its website will appear in position 1 and review sites will appear just behind, on the all-important first page.

You need to sit down and really question yourself about this. The satisfaction of keeping a customer’s money may dwindle against the amount of potential business you lose because people find that person’s bad review of you.

Have you got robust enough systems that give customers a clear channel to communicate positive and negatives things to you? Try to solve any problems which arise before they find themselves splashed about everywhere online.

Be in no mistakes, previously it was only restaurants that were destroyed by bad reviews in newspapers. Now every business is vulnerable.

Refunding customers – Panthera’s take

If you don’t want to give the money back, we understand. But try to engineer a situation where your customer feels like they’ve been listened to and from which they can walk away with their senses of pride and justice intact. Is there something that is relatively cheap you can give the customer as compensation that they think is of a high value? Is there some way you can make a real fuss over them?

To talk about your business and to find out more about dealing with refund requests in your business, please call the team on 01235 768 561 or email enquiries@pantheraaccounting.co.uk.

PS. This article has not been sponsored by Ainsley Harriot.