dealing with refunds for digital products

Dealing with refunds for digital products in 2018

Whether you are selling WordPress Themes, Plugins or services, dealing with refunds for digital products is a very delicate matter. When someone requests a refund there is a possibility for either party to feel unsatisfied with the result.

  1. The vendor may feel the refund request is unjustified.
  2. The client could be unhappy if the vendor refuses to provide the refund.

We have changed our refund policy several times and now we are convinced there is a right way to deal with refunds,and with this post we are sharing it with you.

Do online vendors have the right to deny a refund?

Not only do they have the right, (except in the UK under the Consumer Rights Act) but many others do not even provide refunds for digital products.

This is because while digital products can be downloaded they cannot be returned like a physical product, and the same goes for any digital services offered.

Try asking GoDaddy to refund you for a domain you forgot to cancel and you’ll see from their reply what I mean. Last time I tried to contact them concerning this issue they didn’t even reply.

The iTunes App store sales policy clearly says that you cannot cancel a purchase or receive a refund for a purchase (but if you have a valid reason, they have been known to make exceptions).

As mentioned above, only in the UK are digital and physical goods treated equally.

However, for a client to get a refund they should be able to prove that the digital product isn’t:

  • Of satisfactory quality.
  • Fit for a particular purpose.
  • As described by the seller.

That’s not that easy to prove.

In almost every country (with some exceptions) refunds for digital products are not mandatory.

In most cases merchants are only required to clearly post their refund policy.

PayPal has both a buyer and a seller protection programs. Digital products are not included in the seller protection, so refunds for digital products could be granted in dispute cases fairly often.

Before buying, always ask yourself: is there a refund policy?

The onus is on you, as a consumer, to make responsible decisions about the purchases you make online.

Typically there are three types of refund policy.

  1. The Marketing Suicide: We stand by our product and we provide no refund whatsoever.
  2. Would be fair, but just isn’t: 30 days money back if you asked for support and we failed to provide a solution.
  3. The smart solution : 30 days money back guarantee no questions asked.

We tried them all for a long period of time so we can tell you all about them.

The Marketing Suicide – No Refunds

At first we were so proud and protective of our work that we took it badly on a personal level every time someone even thought to request a refund.

In hindsight, it was not a productive or worthwhile manner in which to conduct ourselves.

It created a bitter, stunted feeling between both parties and left us unhappy.

In addition to increasing our workload when we could have been devoting our attention to improving our products.

It’s just wasn’t worth it, especially when we considered that we were a growing company with increasing visibility.

Our 1st refund policy was the following:

We offer digital media (software) that can be downloaded instantly after a purchase has been made. There is no “trial” or “grace period” after purchasing any product which means all sales are final. Once you have purchased the software, there is no way to “return” it.

It is a member’s responsibility to cancel any payment authorized through PayPal. If you decide to stop the membership and discontinue using our Products, remember to login to your PayPal and cancel the Authorization.

There will be no refund for members that forget to cancel their subscription.

Reading it now it gave me chills 🙁, it was a disgraceful way to act, and we learned it the hard way.

Would be fair, but its not: 30 days money back if you asked for support and we failed to provide a solution.

When we realized that our 1st refund policy was creating more problems that it was solving, we decided it was time for a change. We looked at the rising stars at the time, that being WooCommerce and decided to follow their footsteps.

Our 2nd refund policy stated:

If you are still not satisfied with our products and services after giving us at least one chance to make GeoDirectory work for you (by interacting with us in the support forum):

We will refund your money, as we feel we have failed out responsibilities as support staff.

Ask for a refund within 30 days from your initial purchase here. You will get it, no questions asked.

It is a client’s responsibility to stop payments authorized through PayPal. If you decide you would like to discontinue using our products, please remember to login to your PayPal account and cancel the Authorization.

This was more effective than our first policy, but still created friction with clients. Some clients didn’t attempt to seek support and expressed through their inaction their desire to leave our partnership.

Our previous efforts brought us to our third and final policy.

30 days money back guarantee, no questions asked

Our third and final, refund policy states:

If you are not satisfied with our products and services and are still within 30 days of your original purchase date, your request for a refund will be honored, no questions asked. You can request it here.

Should you open a dispute, instead of asking for a refund, we will keep 50% of the disputed amount while we gather evidence for our submission of the dispute.

It is a client’s responsibility to cancel payments authorized through PayPal or Stripe. If you decide to cancel your membership and discontinue using our products, please remember to login to your PayPal and cancel the authorization. (see instruction here for Paypal). For payments made through Stripe, you’ll need to contact us directly.

Why is it the best.

First of all, you may be surprised to find out how many clients request a refund without providing a valid reason. They are an insignificant percentage.

As a business, we are not losing money. It’s lost revenue, but we didn’t lose the respect of a potential future client who may not ever approach us in the future as the result of a bad customer support issue.

We stand by our products and can personally attest to their quality. While our business is in selling products, we would rather maintain a satisfied customer base than naked profiteering.

While we can definitely afford lose some business, we understand that many of our clients are not so easily able to lose $200 on a business investment, such as a digital product.

Why do we state we keep 50% if a dispute is open instead of a direct refund request?

Because we have the most accommodating refund policy ever!

If you open a dispute with your Bank, PayPal or Stripe, because you didn’t read our policy, you’ll make us do extra work to gather evidence that PayPal or other Payment Gateways require to close disputes.

Not only this, but in most cases gateways charge a dispute fee, not only would we be refunding the money but we would be out of pocket also, so this statement is meant as a deterrent so we are not out of pocket and the customer just comes to us direct. (our first step of a dispute is to email the customer to find out whats happening, if they close the dispute before we have to gather and submit evidence then we do give a full refund)

If you fail to read our policy and then go on to open a dispute with your bank, Paypal or Stripe then you are causing us to take time away from improving our products and business.

When you could have asked for a refund directly?

Why do customers open disputes, when you are that willing to refund?

99.9% of the time for renewals (recurring payments). I guess because they don’t read what they are buying. We  still to this day get people sending us angry emails that often sound like this:

You charged me without my authorization! I opened a dispute and you better give me my money back!

Obviously, we didn’t charge them without their authorization. We couldn’t even if we wanted to.

What happened is that they didn’t read what they were paying for, and we’re not talking about fine prints.

We are extremely clear about subscription & recurring payments. It’s written everywhere:

(there are single non subscription options with our memberships)

In the pricing page

In the Frequently Asked Questions, below the pricing table

In the Check out page

If you use Paypal, it will remind you before final check out

PayPal repeat it once more in their email receipt

Finally we send you an email reminder 7 days before the renewal.

Conclusions for Buyers

Just make sure you read any and all Terms and Conditions, and the refund policy before buying. Most vendors are honest and are not trying to fool you. By reading the Terms and Conditions, you can make sure this never happens to you.

Conclusions for Vendors

While dealing with refunds is inevitable, dealing with them graciously is more important.

Turning refunds from bad to positive experiences will help to maintain a positive relationship with our client base, and in turn help our reputation. We will attract back customers in the future that we may have otherwise lost forever.

We may even get referrals from them that we wouldn’t have done if we hadn’t done something to change our policies.

We’ll have less work and be able to keep our stress levels under control, leading to better products in the future and a more positive environment in which to conduct our business.

While we may be losing revenue in the short run, we’ll feel better about our products and clients in the long run.

Do you agree with us? How do you deal with refunds? Please let us know in the comment down below.

8 thoughts on “Refunds for digital products [2018 edition]

  1. Hi – thanks for this article.
    I’m interested in the idea that you only refund 50% if a client opens a dispute through PayPal or credit card provider. But I’m not sure how you can enforce that? If PayPal finds on the side of the buyer, which they always do with digital goods, then you’re obliged to refund 100%.
    Gareth

  2. Hi Gareth,

    Thanks for your question. This statement is meant as more of a deterrent more than anything.
    If the customer is refunded by the gateway then there is nothing we can do, they get the refund and the gateway takes a dispute fee for their time.

    In some cases they select the wrong type of claim, for example a user might report the transaction as fraudulent, in such cases we email them just saying “hey we noticed you opened a claim, can you let us know the situation before we have to submit out evidence” if they reply something like “i just wanted a refund, i decided i don’t want your product fro XYZ reason” then that will be part of our evidence that clearly they knew about the purchase and its not fraud so we will win. In other cases they might claim its broken or not fit for purpose, in these cases we can submit their support history, showing if they ever reached out for support or not, and if they did it shows we helped as per our T&Cs, and in these cases with PayPal we usually win, Stripe can be hit or miss.

    (i have also updated the article a bit to reflect this)

    Thanks,

    Stiofan

    • Top Article Stiofan 🙂 I am so glad I dont have to deal with the general public anymore, i bet you get some right excuses haha

  3. I’ve had some pretty awful experiences with PayPal and customer refunds. I’ve had clients go as far as to doing a unauthorized transaction floor 6 months of services. Sadly as the seller there’s not much you can do the clients always gets their money back via PayPal. Thankfully this is only happened on a few occasions and for the most part I’ve had good experience using PayPal and selling online services. Overall this is a great article and really helps buyers and sellers learn how to understand what they are buying or selling and what kind of terms they are agreeing to during the payment option.

    • Hi Brian, thanks for your comment. We all had bad experiences and we know more will come, but compared to the amount of great experiences that we have daily with our customers, they are a wee minority. That’s why we prefer to invest little to no energy dealing with bad experiences, by refunding without questioning. It’s a lot less stressful.

    • Hi Brian,

      I have found that with an unauthorized claim you really have to provide lots of evidence, my standard involves:
      1. Any email communication. (first thing i do is email the user asking whats up, sometimes they will shoot themselves in the foot by replying “it was outside the refund period but i still wanted a refund)
      2. Download logs (including IP’s)
      3. Registration IP
      4. Newsletter confirmation, IP (this also proves they has access to the email used).
      5. Licence activation logs.

      I have found that evidence is key (especially IP’s), we win most unauthorized claims with this.

      Thanks,

      Stiofan

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