Q: Dear SaaStr: Should We Allow Refunds in a Multi-Year SaaS contract Paid Upfront?

Let me add a slightly controversial answer.  If you’re still a startup, then I’d say — Maybe.  If pushed.  If it’s important to the deal.

But almost everyone you ask will say No.   They’ll say never allow refunds in a multi-year contract:

  • Sales will hate it, especially if there is an explicit or implicit clawback if they do.
  • Finance will hate it because they have to deal with reserves, or a financial hit
  • Customer Success will hate it because it’s a discussion they just don’t want to have
  • And let’s be clear — what’s the point of giving a discount for multi-year if they can cancel? It doesn’t really make any sense.

They are right.  So generally, don’t do it.

But … Before $10m, $20m ARR, maybe rethink that just a bit.

You are still a start-up.  Until you are at $10m, $20m ARR … Close The Deal.   And — Cash is King.

If they’ll pay you three years upfront, and you have to take some risk that you make them happy — I’ll take that risk.  As should you.  Stand behind your product, and yourself. And if you do — very few customers will really ever ask for a refund, even a prorated one.

And few of your large customers, the ones that will actually pre-pay for 2-3 years, will churn anyway if you do your job right.

So net, net the risk is low.

Get the Deal Closed.  And if 1 or 2 customers are unhappy, and ask for some of their cash back later and aren’t using your product — it probably won’t much matter.

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