Episode 86:When Should You Offer a Money-Back Guarantee?
Money-back guarantees are helpful in some situations, and really harmful in others. When should you offer a money-back guarantee, and what should the conditions be around it?
Summary
Nick and Kai work through money-back guarantees for both consulting services and info products, arguing that the real goal is risk reversal and a refund is just one tactic for it. They cover contract language, how to handle refund requests when they arrive, and conditional guarantee structures for courses. The episode runs from pre-sales objection handling all the way to what actually belongs in a master services agreement.
Highlights
- Nick: 100% of his consulting clients came through referrals, so a money-back guarantee is worse than useless. Adding one raises the probability someone demands a refund to near 100% and torches the case study and referral pipeline along with it.
- Kai’s former coaching student replaced the money-back guarantee with a ‘MacGyver guarantee’: after a roadmapping session, if the client lacked any tools or resources she promised to deliver, she’d add another call or follow-up support. The commitment was ‘we will leave you better than we found you,’ not ‘here’s your money back.’
- Nick: the master services agreement should state unconditionally that there are no refunds for work completed. Without that clause you’ve legally exposed yourself, and that exposure is potentially a bankruptcy move.
- Kai: two similar companies working through the same engagement can land in very different places depending on whether management has bought in and whether team members are cooperative. The ‘as is, no refunds for work performed’ clause covers what a consultant can’t control.
- Nick on info products: low-priced PDFs, just refund and quietly blacklist. For a $1,000 course, make the buyer justify the request with something specific and actionable. Half-sentence responses don’t qualify, and piracy risk is real.
- Brian Harris of Videofruit uses a proactive conditional guarantee on his 10K subs course: if you follow the first modules and haven’t added 100 subscribers by a specific point, he’ll refund you and exit you from the course. It sets a leading indicator and doubles as a qualifying filter for people unlikely to finish.
- Kai’s closing point: talk to buyers and people considering buying to find out where they actually feel risk, then build a reversal that addresses that. Money-back guarantees get chosen by default because they’re easy to reach for, not because they’re the right fit.
Read the transcript
Oh, thank you. It’s dismal. It’s it’s not good. I’m going to want my money back.
See, I’m torn because I want to within within like the the jokingness of that Agree to it, but for information products, for educational products, it’s I don’t know how I feel since like Do we want to talk about this from the perspective of money-back guarantees for products or money-back guarantees for services? Since I think it’s a very, very different approach for each.
Oh, there’s both. I mean, we got 20 minutes. There’s let’s talk about services for the first. The guarantee that you should offer is not your money back. You should guarantee your services. But instead of that, how about you just fire yourself and salt the earth and never have a case study for that client? Because the reputational hit that you get from it is more impactful to you, and you still get to keep the money, so you’re not affecting cash flow. Because with draft or vise, if somebody asks for their like $25,000 back for draft revise, I have already spent that. Like we’re done here. But every client, the next level up is I should be able to turn your business into a case study, right? And I should be able to get refers from your business. 100% of my clients right now came in as refers for other people. And so if you get a money-back guarantee in a consulting relationship, You’re going to get people who act on bad faith. They’re going to act unprofessionally. They’re going to buy you your service and then demand a money-back guarantee. You basically. Adding that increases the probability that someone will demand their money back to about 100%. I really don’t believe there’s any benefit in doing it. It’s like, oh, I’ll close the deal. If you aren’t closing the deal through other methods, then you need to up your game as far as your sales.
I think it’s important to also think about what the purpose of a money-back guarantee is. It’s a form of a risk reversal. And it’s one that people very much gravitate towards when it comes to services just because we see it around us all the time. The strategy is not offer a money back guarantee, what type of money-back guarantee. The strategy is reduce the risk the buyer is feeling about the service. Money-back guarantee being one of many different tactics. A former coaching student of mine came up with what she called the MacGyver guarantee, where after her roadmapping session It wasn’t a money-back guarantee. It was the MacGyver guarantee. MacGyver never left you without the tools that you needed, and neither will she. So, after the road mapping session, if you have any questions, You get another call, or you get a chance to email and ask more questions, or whatever resources you feel you don’t have or weren’t prepared for. She will deliver for you. And I think that’s a wonderful example of a strong counterpoint to a money-back guarantee. We are guaranteeing we will leave the client in a better condition than where they started. We are not saying if you are not completely satisfied, here is your money back to your client. And I think it’s very, very important to understand that the key element is the risk reversal, not the money back guarantee.
Yeah, yeah. It’s giving somebody their peace of mind and dissecting their objections. And there’s so many ways to skin that cat without offering a money-back guarantee. You put together a portfolio of your past projects. You talk about the outcome for the client. You talk a lot about predicted outcomes that could potentially happen. You anchor it to the rest of the industry. You talk up your own prestige. So if you’ve written books or courses or You’ve spoken at conferences. You can talk about how you’re trusted in the industry. You can even go so far as to introduce them to other clients that you’ve had so that they can give you Really kind word. I mean, there are a lot of ways to go about doing this that don’t involve basically, if you give a money back guarantee, you are guaranteed torching that client. Like, that’s it. you are not going to have a good relationship with them.
Aaron Powell, so we’re talking about the front end, sort of the pre-sales or the sales side of the money-back guarantee. But let’s flip it around for a second and talk about the post-engagement side. So A client came on, you had some sort of money-back guarantee or some sort of guarantee for your services. The client says, Hey, We went into this expecting or being primed that we would get a return of 2x or 3x or see this measurement change or see this key performance indicator move in this direction. We do not see that. Therefore, we are unhappy, therefore we would like our money back. How do we tackle that situation with or without a money back guarantee having been advertised?
In your master services agreement, you should state that there are no refunds for work completed. And that’s unconditional. You’ve done the work, you’ve taken your time. People recognize that it happens on an as-is basis. And if you haven’t put that in your contracts, put it in your contracts. If you don’t have a contract, get a contract because you’re an adult. That’s it. That’s it. It’s either in the contract and you’ve covered your ass, or it isn’t and you’ve legally exposed yourself. And that could be a potential bankruptcy move.
I 100% completely agree. My contract has that exact language in it. And for the listeners, this was a point that I had a lot of internal struggles with for years. I felt that it was odd to say, hey, you know, services will result in outcomes like X, Y, or Z or similar to this. And if we didn’t hit it, well I could sort of see the client side, like, hey, we went into this expecting this. And I could see my side, hey, each engagement is different. And what it came down to was me realizing and internalizing. All marketing and all consulting is really an experiment, an experiment on behalf of the client. We’re using best practices. We’re guided by previous engagements. We’re guided by Our knowledge and industry knowledge, and we are making an intervention on the client’s business with the goal of changing something and having a resulting outcome, moving them closer to the destination they want. all interventions are different. We can have two very, very similar companies with similar situations come to us and want to work with us, but in one Everything goes perfectly. Everybody’s on board. Management has bought in. The team members love it. Everything goes perfectly. And the other one, well, the team members really don’t like a consultant coming in, and so They passively aggressively throw up a couple blocks here and there, and the engagement doesn’t go as smoothly, and it’s not as far along as the first company at the same time period. And thinking through that, I realized. Every engagement is different. And so to hold each engagement to the same standard doesn’t really make sense. And this helped me understand why The as is work and no refunds for work-performed clauses were so important because it Freed me up as a consultant to do the best work I could within the scope of the engagement. But if the client didn’t provide support or resources that I needed, or team members weren’t on board, Those are elements that are completely out of my control. If we get to the end of the engagement and those elements have prevented me from performing as expected, what more could be expected than, well, we didn’t get as far as we thought we would because of these factors.
Right, right. Yes. So I think that covers it for consulting services. I feel like that is way more clear cut, right? Because there’s your consulting or you’re not consulting for a client, right? Even if it’s like a one-off project, like a Revised Express report or something, you’re still doing consulting. When it comes to an info product, there’s kind of a gradient, right? It’s either it can run from the about page side of things, right? Where you’re just Transactional, you’re buying a PDF and that PDF, the marginal cost of delivering that PDF is effectively zero dollars. To maybe something that involves a one-hour call, which I wouldn’t call consulting necessarily. It’s like a little bit consulting. Something that anything in between where it’s like a five-hour course or even higher on the end, you can have something like Academy, right, where you have like Slack access and like periodic phone calls and stuff like that, right? So there are a lot of different ways to express this. I’ll talk about my process first. If somebody buys a copy of Cadence and Slings, like a PDF and they demand their money back, I just give it to them and I salt the earth. What I usually do in that situation is I also quietly blacklist their email from ever being able to buy stuff from me again, but that’s usually never a problem. It’s only been a problem once. Higher up, if they buy something that’s like a big involved course, I will Make them justify why it’s not a good fit, right? And if they keep giving me half-sentence responses, I’m like, then sorry, I cannot give you this. You have to actually put in work to justify why I should refund you for, say, a $1,000 five-hour course that I’ve given you access to and you could easily be pirating. And so that is that’s kind of how I comport myself. And then I again salt the earth and never let you buy my stuff again. Higher up on the level is it’s gonna be theoretical because I don’t really have like terribly high-end stuff that doesn’t involve just access to me. But if you like by an academy or something like that, It actually kind of reverts back to the original info product. It’s like on you to actually follow the advice and follow the directions, right? Nobody accidentally applies to a course that amounts to like being part of a school. And I don’t think that it is Healthy or reasonable to assume that somebody can like sink that much time and effort into something and then demand their money back. If they like if a big life change happens, they should still be eating the cost. Unless it’s like their house got bombed. It should be more like, oh, I decided to take a full-time job and I don’t need this course on like I don’t know, running a consultancy or something like that. You’re then you wasted money on the course, right? So that is something that, like I think that I’m pretty inflexible about it. And you can complain all you want, but ultimately, like put that into your terms and conditions. and say that there are no refunds. And if you say that there are no refunds, you’re not the one offering the money back guarantee. People can complain all they want. Alan Weiss does this all the time, right? Like he just says, You don’t get a refund from this. You pay me. Yep.
Yeah, I completely agree with that. I think that My philosophy is evolving to for and like let me say at the start of this, I have under a half a percent refund request rate on my products. It’s something super, super, super low. We’re talking like less this year, I’ve had less than five people email me asking for a refund on a product. So it’s already a super, super low number. And so I’m looking at refund requests or changing my refund request policy to eliminate the percentage of people that I notice who buy and then immediately request a refund and just were Using a money-back guarantee to get the product for free. So I’m evolving to the point of thinking of lower-priced products, say Under course size or under $300 or under $500, there is not a money-back guarantee for it. For Courses that, or for products that are more like a course where it’s ongoing, it’s instructional, maybe it’s pre-recorded, but there are lessons and homework assignments There are conditional money-back guarantees, but just like Nick says, you have to show your work. You have to show that you are putting in the effort. If somebody takes one of my courses, completes all the material, and says, hey, this is not for me, this is not a good fit. that’s more like a situation where I could see offering a refund. What are your thoughts?
Yeah, I mean, I think you’re kind of outlying the terms of the gray area a little bit. You need to make the customer work for it. And again, this is something that you should be putting in. I’ll just kind of yes and that and say, you should be putting this in the terms. It is. Not enough to say if you just justify yourself, but no, give like an example, right? Say like, okay, you know, It can’t be working in this way. Or we tried your advice and it was really bad for our business, or something like that. Well, um Okay, well, you can’t just be parroting my advice. It’s kind of bespoke to the business. So like hopefully I’ve offered some strategic contours to it. But like In that case, I would go and ask, okay, well, what did you try? Because it could be that they tried the wrong things, or they tried only some of the things and like half-assed everything else. Or it could just be that their business shut down and they’re being really unethical. And, like, you know, again, that’s not going to fly.
There was a mid-four figure course I purchased a few years ago on business. And I started taking the online course. It was prerecorded instructional material that was dripped out weeks over a time. It was something like 12 or 16 weeks long. And three weeks into it, my mom went into the hospital and was having crazy medical things happen. And I reached out and I was like. I need to cancel. I need to refund. Crazy life event going on. I don’t have the time and attention to do this. And it was very interesting going through their cancellation process. because they reached out and said, hey, we hear you. Do you want to pause or do you want to cancel? And I said, I really need to cancel. And so first thing they did was offer just to pause payments and diffuse the refund. The second thing was saying, okay, great, per our terms and conditions, We’d love to see your work. We’d love to understand how you’ve applied this, what lessons you’ve completed. So, can you take photos, scan it in, send it over? And my response was, I just started the course, mom in hospital, have not even started. And so they let me through sort of the side exit there. But I really enjoyed their focus on we know this material works. We’re confident this material works. If you’re saying it’s not working for you, we want to understand why because that is the exception. And so we’re asking you to provide us with that information so we can make the product better. And it also serves as a safety check for people who are a little more black hat and trying to get the product for free.
Yeah, yeah, that’s the thing. It’s like your. It’s an opportunity for a critique process, right? Because if you get a money-back guarantee, you’re taking the high road by being like, okay, well, we failed you in some way, right? And so if that’s the case, we need to find a way to improve. And if we’re trying to find a way to improve, then we need feedback from you, and we need that feedback to be specific and actionable. So, yeah, I think there’s a lot to that. And it’s a good strategy to be taking where you kind of like assume, okay, well, we failed you. How did we fail you so that we don’t do this with other customers in the future? And if you don’t get a good answer from them, like an answer that is actually specific and actionable, you can ask more questions or just assume they’re being suspicious and dumb. Either is fine as an answer, but like you need to know what you know, you can kind of read that, I think.
Right. I think one interesting, and again, it’s important to think of the strategy here. It’s a risk reversal, not a money back guarantee. Money back guarantee is just one form of it. And with courses and products you can identify other ways to offer that same risk reversal. Brian Harris of Videofruit does this very, very well with his 10K subs course. I think this is a very good strategy. He says, if you are, if follow, like four weeks into the course or two weeks into the course, if following the strategies in the first few modules, you haven’t been able to add 100 subscribers to your email list. We want to refund you. This is not a course for you. You are not going to succeed. And they are proactively and preemptively setting the stage for this is where you should be. And if you aren’t able to get there in that timeframe, It’s not going to be worth it for you. It’s not going to be worth it for us. We want to refund you and just get you out of there. And I like that as a strategy because it gives you a leading indicator to look for. And if people who are paying for a four-figure product aren’t achieving that metric in a specific time frame, hey, you have determined they are not a good fit. It makes sense at that point to refund them. It’s almost a qualifying process.
Yeah, and to be clear, the big thing is they have to have actually done the advice, right? It’s not like I didn’t do anything or I implemented this horribly and Now, I’m not actually seeing any benefit in my business. Screw you. Like, that’s not okay. But if you go through and do everything, and it’s totally reasonable, and it turns out it wasn’t moving the needle in your business, like. That’s kind of the same thing as I was saying with the consulting, like fire me, right? Like one thing I say with draft revise is if I don’t make back my fees in the first three months of our working together, you should fire me, right? Hell, I’ll fire myself. I’m very good at that. But uh but yeah, I think that beyond that, there’s like no There’s no justification for it.
Yeah, and again, I know I keep harping on this point, but think of the major strategy at play. A money-back guarantee is just that risk reversal, and start exploring. Where your customers, either on the consulting service side or the product side, feel risk around the purchase. And once you identify that, and you should be talking to customers, talking to buyers, talking to people who are considering buying your product or your services to understand where they feel risk. Once you understand that, then you could start crafting a risk reversal that makes sense. Money back guarantee seems like the lowest hanging fruit, and it always gets picked because, well, I’ll just offer a money back guarantee since why not? But There are so many different ways to diffuse that risk that a customer feels or overcome objections that they’re expressing. Explore those areas. Don’t just take the easy path of money back guarantee.