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Hey there, I’m Danielle. Welcome to Episode 48 of Simplifying Legal for Small Business Owners. Today, I’m talking about how to structure money-back guarantees.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and doesn’t create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
The past few episodes have included a lot of information regarding the FTC and this one will too. Because, not surprisingly, the FTC does have guidance on money-back guarantees. I’m also going to give you some specific examples of how money-back guarantees can be better structured to ensure that they are compliant.
In this episode, I have online business owners in mind. Especially coaches, membership site owners, and digital product creators. I regularly see money-back guarantees on sales pages and, well, let me be honest, some of them are a mess. My hope is that this discussion will make it easy for you to create your own money-back guarantee. But, of course, I know that many business owners are also consumers, so if you are in the role of looking at a money-back guarantee, this will help you to evaluate it and know what to look for. And if you can’t find the information, you’ll have an idea of what to ask.
Overview of the FTC
Let’s get started with another short review of the FTC. If you’ve listened to the past few episodes, you’re probably going to be able to say this with me.
The Federal Trade Commission, or FTC, is a federal agency with two primary goals: to promote competition and to protect consumers. Under the umbrella of consumer protection, the FTC watches for unfair or deceptive practices in advertising.
Under the FTC Act, advertisements must:
- Be truthful and non-deceptive.
- Be fair.
- Have evidence to back up any claims.
And, remember, all of your marketing, like your website and social media, is considered an advertisement, not just paid ads, like on Facebook.
Online Money-Back Guarantees
Just like in other advertisements, the FTC protects consumers from ads about unfair or deceptive money-back guarantees.
For our purposes, I’ll be referring to money-back guarantees because I think that’s one of the most common labels I see from online businesses. But, it can also be called other things. The words money-back guarantee aren’t the trigger; it’s the intent. So please don’t think you can say satisfaction guarantee and avoid having to follow the FTC’s rules.
The FTC’s guidance is clear – if you want to call it a money-back guarantee, that’s exactly what it needs to be. This means the consumer gets a full refund.
It was a trend for a while that places would offer a money-back guarantee, except the company would tack on processing fees or try to recover their credit card transaction fees. If you call it a money-back guarantee, it needs to be for the full amount. Otherwise, it’s only a partial refund.
Disclosing Money-Back Guarantees
A company, however, can put parameters on their money-back guarantees, as long as it follows the FTC’s rules. If there are conditions attached to a guarantee, the FTC has stated that an ad that mentions the guarantee “should disclose, with such clarity and prominence as will be noticed and understood by prospective purchasers, any material limitations or conditions that apply.”
To translate, that means that if you have conditions, you need to disclose them and ensure that purchasers will understand the disclosure.
In the online business world, most of the guarantees that I see are not unconditional money-back guarantees, meaning that someone can ask for their money back at any time and get a full refund.
Are there Conditions in a Money-Back Guarantee?
The most common condition on money-back guarantees that I see from online business owners is a time limitation. For example, a 14-day money-back guarantee. If this is how you are advertising the guarantee, with no other disclosures of other conditions, someone should be able to receive a refund if they make a request in that window.
The other type of guarantee condition that I see frequently in the online business world is proof of trying the product or service. And, often, they get complicated. This type of condition might say something like, 30-day money-back guarantee if the program doesn’t work for you. And, then, when you investigate the fine print, it will say that you need to complete a number of different steps and then submit a request outlining why it didn’t work.
For this type of guarantee, please remember that you do need disclosure when you are marketing that guarantee. For example, you would need to state that there will be steps that they have to follow to demonstrate that they’ve participated and it didn’t work. Often, companies will then link to the specific details.
Building Better Money-Back Guarantees
Now that we’ve covered what two of the most common types of conditions are, I want to talk about how to build better money-back guarantees. The goal is to make sure your guarantees are well-worded and FTC-compliant.
I see a lot of business owners who want to look like they offer a guarantee, but it’s really something that they don’t want to let people take advantage of. It’s a tool to generate more sales since the customers will feel more secure buying if they know there’s a safety net. I’m all for offering money-back guarantees if you really do want to offer that safety net.
In this podcast, I try to stay impartial. I want to give you the facts and then it’s up to small business owners to make choices about how certain things will impact their business. But, I’ve seen money-back guarantees take some rather unpleasant twists and turns, so I do have some strong opinions on this one.
Be Truthful in your Money-Back Guarantee
So my recommendation for how to build a better money-back guarantee is pretty simple. Don’t lie. And if you really don’t want to give refunds, don’t offer a guarantee. And, yes, this is probably where legal can be at odds with increasing conversion rates, but I don’t think it is worth it to offer a guarantee that’s unfair or shifty.
Beyond that simple rule, here are the rest of my tips if you want to offer money-back guarantees.
More Tips when Offering a Money-Back Guarantee
First, if you offer a money-back guarantee, do you get customer complaints about it? If you do, take a look at how you advertise it and how you explain any conditions. It may be that you have wording that doesn’t make sense. Knowing how to avoid those customer complaints can mean that you don’t have to dedicate as much time and resources to respond to them.
If you are offering time-based conditions, make sure they are extremely well defined.
For example, let’s say you run online courses that run in cohorts and you use a launch model where people can enroll during a week-long window. Then, the course starts after the launch period is done. If you say you offer a 14-day money-back guarantee, when does the countdown start? If someone bought on the first day of the launch, would they have 14 days from the purchase date or 14 days from the first date of access to the content? Is that clear to your customers?
My rule for time periods is to be clear on the start and end dates.
Also, I recommend giving clear instructions on how to submit the request so they don’t waste time sending emails to the incorrect place. Because an improperly routed email can add a day or two of processing to the request and that may be a little stressful for the customer who wants to make sure that they can get their money back.
Here’s an example of how you can structure a 14-day option: we offer a 14-day money-back guarantee. The 14 days is measured from the date your purchase is processed, regardless of what time you made the purchase. You can submit a request at any time to our customer service team before midnight Pacific Time on the 14th day after the purchase date and we will honor your request.
This policy is really clear and easy to understand.
Online Proof-Based Guarantees
Next, let’s talk about proof-based guarantees. These are the ones that I think can be more problematic.
First, you need to make sure that the marketing of the guarantee is clear that it isn’t just satisfaction guaranteed or your money back. Always convey that there are steps that someone will need to take to demonstrate that they have done the work and that’s why they aren’t satisfied with the program. Make sure you disclose that there are additional steps. If you aren’t disclosing that, it may not be FTC compliant.
Within the guarantee, then you need to cover with specificity what the person needs to do. Give specific steps. Don’t make this overly subjective for you or your team. For example, don’t make someone write an essay about why it didn’t work and then say, well, we don’t think you tried hard enough, so you don’t get your money back. That is very likely to lead to an unhappy client and a potential payment dispute.
These types of guarantees can vary considerably, so let’s say that you offer a 60-day guarantee if they can show the program hasn’t worked for them. You need to give the details as to what they need to show as proof. Give them something tangible, like completing exercises or tracking that they watched certain modules. Then, advise them of how to submit the necessary information. Make sure your team is consistently applying the same criteria.
Remember, the goal is to ensure that the guarantee is not unfair or deceptive. When you are clear about what’s required, you should be able to structure a solid money-back guarantee.
This wraps up today’s discussion. Here are today’s action steps:
- Do you sell products or services that offer guarantees? If yes, are they conditional? Have you prominently disclosed it? If not, you need to update this.
- When using conditions, will the average consumer understand what they need to do? In the online business world, I’ve seen some really complicated guarantee conditions. Make sure that your customers will understand.
- Last, as always, if you have questions about your guarantees, please talk to your lawyer. I regularly work with clients on creating terms for their products and services through my law firm, Liss Legal. I’d be happy to chat to see if we would be a good fit to work together. If you’d like to learn more, visit LissLegal.com.
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