Generally, track to the cash:
- If a customer has signed a pre-paid annual or multi-year contract in exchange for a discount or other terms, then there’s generally no reason to return any pre-paid cash. The contracts are generally not cancellable by their terms, and so you keep the cash.
- And if cash isn’t pre-paid AND a customer stops using your contract … at a practical level, there isn’t much you can do. Are you going to sue the customer? Threaten them? Some sales reps might, and they’ll talk about threatening the customer. After all, their commission is at risk. But don’t let them. There is zero upside in threats, and it is impractical to sue. Sending a customer to a collections agency? That doesn’t really work out well in the end, either.
In the end, cash + usage are key here:
- If the customer hasn’t paid (no matter what the terms of the contract) but also hasn’t used the product, let it go. You didn’t earn the next payment from the customer. It’s not a real customer if they aren’t even using your product.
- If they’ve paid, keep the cash.
- If they’ve paid but don’t want to use the product and insist on getting some cash back … I say default to No if they got a discount for it. That was the deal. But if they got nothing for pre-paying, it may make sense to refund them a pro-rated amount. At least you might get them back someday. If they leave angry … they are never coming back.
Net net save your energy in customer disputes. Let them go. And don’t ask them for more cash upon leaving. But you don’t usually have to refund anything.
(note: an updated SaaStr Classic answer)