Dear SaaStr: What is a Good Refund Policy for a SaaS Product?

Dear SaaStr: What is a Good Refund Policy for a SaaS Product?

SaaS startups, especially those that sign customers to annual customers, will have customers that want to cancel those un-cancelable contracts and get a refund.  Even customers that pay monthly on credit card will sometimes ask for a pro-rated refund for the most recent month.

Almost every vendor says “No” to any refund request.  No refund for any part of the month.  And no refund for any part of an annual, signed contract. “You signed the contract”. “You got a big discount for pre-paying.” Etc. etc. And Sales especially hates this. They don’t want their commission clawed back.

I didn’t give refunds, perhaps in part because we weren’t asked for that many.  But even so, whenever I saw one asked for, I also saw a ton of internal energy expended around them.

Now, I say generally speaking — Just Do It.  At least, for whatever portion of the term they didn’t actually use your product for real, in production.

Just give any annual customer a refund for the unused portion of the contract, and so on, or at least a partial one. Or give them a credit for coming back later. (And yes, I know there are accounting issues here. Take a reserve. Such is life).  Even though your terms of use and contracts probably explicitly say No Refunds.

Why?

* Because that way, you may get them back, and they will remain a brand advocate.  Treat folks better than they expect on the way out, they are more likely to come back.

* It’s never that much.  Refunds hurt at the time, but they don’t amount to any material amount of your long-term revenue

* They take too much internal time and energy to discuss.  Folks feel so passionately about the topic, you waste too much energy discussing a partial refund.

And if you burn them … those few nickels you’ll keep aren’t worth it. Most SaaS vendors with happy customers don’t get that many material refund requests. You have bigger issues to deal with.

In SaaS, you constantly have to re-earn your customers’ business anyway. No matter what the contract says.

Interestingly, Expensify recently IPO’d at $200,000,000 in ARR selling all to SMBs.  Until they got ready to IPO, they always offered refunds on annual contracts.

That’s probably the right approach.  Be flexible on refunds until the IPO at least.

5 Interesting Learnings from Expensify at $140,000,000 in ARR

Published on January 1, 2022

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