Most business owners dread having to issue a customer refund. It usually means you have a dissatisfied customer, a loss in current and future revenue, and a potential hit to your reputation. But customer refunds are actually golden opportunities for your business to shine and win loyal customers.

Seems hard to believe, doesn’t it?

Think about the last 3 times you spent money and left satisfied. It can be anything: gas, food, your gym membership. Do you remember anything about those transactions?

If they went smoothly, probably not.

When transactions go as expected, they generally don’t stand out in our minds. You may be hard-pressed to even recall the name of the businesses you purchased from.

Now think of the last time you were owed a refund. You remember the name of that business, don’t you? And you probably also remember everything about the sale and the details that led up to you wanting that refund.

Now depending on how that business handled your request for a refund, you may have strong positive or negative feelings about it.

The Power of Customer Satisfaction

Marketers spend thousands of dollars trying to get qualified people to notice and remember their businesses. You may have heard it’s 5 times more expensive to acquire a new customer than it is to retain an existing one.

Here’s why.

When a customer requests a refund, you already know 2 things about them: 1) They’re interested in your product or service, and 2) They’re willing to spend money on it.

This is one of the hottest leads you’ll ever get, and making them happy is the best way to keep them as a customer.

Especially since dissatisfied customers share poor service experiences with nearly 3 times as many people as they do with good service experiences.

So, what do you do and say when a customer wants a refund? By handling the customer’s request for a refund in a positive, professional manner you can snatch victory from the jaws of defeat.

How to Handle a Customer Requesting a Refund

Handling customer refunds the right way is actually not as hard as it may seem. Follow these tips to set clear expectations and ensure your customers feel satisfied and safe doing future business with you.

Establish a return and refund policy

Good customer service starts before you ever meet your customer. Having a clear return and refund policy sets important expectations before the sale. This also minimizes disputed charges, too many of which can put you in jeopardy with your online payments provider.

A good return and refund policy generally contains the following elements:

  • How many days a customer has to return a product or request a refund
  • Which method you’ll use to issue the refund (e.g., store credit, replacement, or original payment method such as cash or credit card)
  • Which products or services are not eligible for refunds
  • Any non-refundable or additional fees such as shipping costs or restocking charges

Some states have specific laws governing returns and refunds, so it’s best to check your local state laws when creating your return and refund policy. Here’s a great resource for customer return and refund laws by state.

Listen to your customer

When a customer comes to you upset and demanding a refund, they may not be in the most rational state of mind. Understanding this is extremely important.

One of the best things you can do for a frustrated customer is to make them feel heard. Whether they’re disappointed that their expectations weren’t met or they just feel ripped off, allowing them to explain how and why they feel you screwed up goes a long way in making things right.

Obviously, no one likes to get yelled at. Understanding once again that your customer might not be in the most rational state of mind will help you get through it. If you’re lucky, your patient listening will be enough to turn things around. At this point, you can move on to more proactive solutions.

Offer a sincere apology

Once you’ve heard everything your customer has to say, de-escalating the situation with a sincere apology can soothe an injured ego and put your customer in a better frame of mind — making them more receptive to any solution you propose.

If you still don’t have enough information to understand whether it was truly your company’s fault, your apology can be something along the lines of, “I’m sorry your experience with us was so bad. We really want you to be happy. May I ask a few questions to clarify what happened?”

Being apologetic (even overly so), expressing a desire to make things right, and partnering with your customer to understand exactly what happened can get your customer to shift their focus beyond anger to problem-solving.

See if there’s a way to fix it

Once you’ve got the full story of what happened, work with your customer to see if there’s a way to remedy the situation without refunding their money.

Whether this means redoing the work, replacing a product, or giving them their next service free, you want a chance to show your customer how good your service or product can be when things go right. This leaves the door open for future business.

Also, understand that all customers have different personalities and motives. We’ve identified 5 types of complainers and how to deal with them to help you customize your approach.

Assure them it won’t happen again

Once you’ve agreed on a plan to make things right, let your customer know what precautions you’ll be taking to make sure this never happens to them again. If you need to personally oversee their next service or make a systemic change in your business, let them know what action will be taken.

A note here: Customers don’t like it when you shirk responsibility. Even if it’s a vendor or another employee’s fault, they want you to take responsibility. It’s the only way they can feel safe that you’ll actually keep your promise to not let it happen again.

Offer something for their trouble

Being a good business owner means being empathetic to a customer’s feelings. Even if you’ve completely redeemed yourself by apologizing profusely and replacing a defective product, your customer was inconvenienced by not getting what they wanted in the first place.

Sending them an ‘I’m sorry’ bonus like a future discount, extra service, or even a card or some chocolates will make them feel cared for and special.

If you must offer a refund, make it quick and easy

There are some customers who, at the end of the day, just want a refund. While this may feel like a complete loss, it doesn’t have to be. Making the refund process smooth and easy sends the message that you’re not there to rip them off. Having the right software to process returns efficiently is necessary here.

Keep your pleasant demeanor, process the refund, and offer a discount on a future service. This will leave your customer with a positive impression of your business. One that may drown out the negative impression they had when requesting the refund.

While issuing a refund generally means something went wrong, do whatever you can to make things right. Taking responsibility and going above and beyond for your customer can turn your angriest customer into your biggest fan.