The Opportunity Cost of Mistrust

How much money do you leave on the table by trusting customers?

Case 1.
David Maister
wrote about his service guarantee.  His precise words are, “If you are anything less than completely satisfied, then pay me only what you think the work was worth.”

One commenter on the posting said, “I like the post quite a bit, but I’m surprised that no one has commented on the first thing that came to my mind on the guarantee – those customers who will take the opportunity to stiff you on good work simply because of the opportunity via the guarantee."

David’s reply:

“It has never, ever happened to me. And if it did, I’d apply that old slogan "Fool me once, shame on you. Fool me twice, shame on me."
I don’t work for cheats or people I don’t trust. And if it ever happened by mistake, I wouldn’t be tempted to change the pricing policy to accomodate it! A pricing policy designed to accomodate SOBs sounds like a disaster to me.

Case 2.
I have myself on three occasions offered a complete refund of my fees because I felt the result wasn’t good enough. The client refused in each case and paid in full.

Case 3.
Joel Spolsky posts Seven Steps to Remarkable Service,

Step Seven is, “Greed Will Get You Nowhere,” wherein he talks about Fog Creek Software:

I asked what methods they found most effective for dealing with angry customers.

“Frankly,” they said, “we have pretty nice customers. We haven’t really had any angry customers.”

I thought the nature of working at a call center was dealing with angry people all day long.

“Nope. Our customers are nice.

“Here’s what I think. I think that our customers are nice because they’re not worried. They’re not worried because we have a ridiculously liberal return policy: “We don’t want your money if you’re not amazingly happy.”

“Customers know that they have nothing to fear. They have the power in the relationship. So they don’t get abusive.

“The no-questions-asked 90-day money back guarantee was one of the best decisions we ever made at Fog Creek. Try this: use Fog Creek Copilot for a full 24 hours, call up three months later and say, “hey guys, I need $5 for a cup of coffee. Give me back my money from that Copilot day pass,” and we’ll give it back to you.

Try calling on the 91st or 92nd or 203rd day. You’ll still get it back.  We really don’t want your money if you’re not satisfied. I’m pretty sure we’re running the only job listing service around that will refund your money just because your ad didn’t work. This is unheard of, but it means we get a lot more ad listings, because there’s nothing to lose.

Over the last six years or so, letting people return software has cost us 2%.

2%.

And you know what? Most customers pay with credit cards, and if we didn’t refund their money, a bunch of them would have called their bank. This is called a chargeback. They get their money back, we pay a chargeback fee, and if this happens too often, our processing fees go up.

Know what our chargeback rate is at Fog Creek?

0%.

"I’m not kidding.

"If we were tougher about offering refunds, the only thing we would possibly have done is pissed a few customers off, customers who would have ranted and whined on their blogs. We wouldn’t even have kept more of their money.

"I know of software companies who are very explicit on their web site that you are not entitled to a refund under any circumstances, but the truth is, if you call them up, they will eventually return your money because they know that if they don’t, your credit card company will. This is the worst of both worlds. You end up refunding the money anyway, and you don’t get to give potential customers the warm and fuzzy feeling of knowing Nothing Can Possibly Go Wrong, so they hesitate before buying.  Or they don’t buy at all.

How much money are you leaving on the table by not trusting your customers?

0 replies
  1. Duncan BUcknell
    Duncan BUcknell says:

    Great post.  When I started my own practice in 2005 I decided to have the same guarrantee as David – because I think he (and you) are right.  

    The othe part of David’s guarrantee is the proviso that to invoke the guarrantee you must tell him what you’re not happy with.  This is actually a powerful part of the package as it clearly says – ‘I’m more interested in learning how to serve you to the best of my ability than I am about the fees on any given engagement’. 

    Unsurprisngly, I have also found that by putting yourself at risk like that it is much easier to maintain the discipline required to really serve your clients at the highest level.  It is basically another driver towards even better client service, which of course, makes the likelihood that someone will invoke the guarrantee less likely. 

    Reply
  2. Ian Welsh
    Ian Welsh says:

    I once took a contract I hated (being a cleaner) and after about a week and a half went to by my boss and said, "I’m doing a lousy job, and I know I’m not going to do a good job, so I’m quitting and you don’t need to pay me for the time I’ve put in."  His response was "I had been meaning to talk to you abou it. "  I kept the other contracts and even picked up additional work from him later.

    Reply
  3. will
    will says:

    This kind of advice is so nice because reading it, I think, "wow, I would never think that would work", and yet once again, generosity seems to work overall.

    Reply
  4. Philip J. McGee
    Philip J. McGee says:

    My experience tells me that “Trust Matters” is right on the money.  Whenever I have a dissatisfied client I go right into “How much discount do you want?” mode.  If, however, over time the client appears to be taking advantage I ask for a meeting and tell them what I’m thinking.  If the meeting doesn’t go well I tell them that our relationship is over.

    Reply
  5. Charlie (Green)
    Charlie (Green) says:

    Will, it’s the paradox thing; always surprises me too, but it’s true.  And what I hear Phil and Ian and Duncan saying is, be the first one to speak the truth of what’s going on—which is just what we don’t want to do.  But it works when you do, for all concerned.

    Reply
  6. Dave Prouhet
    Dave Prouhet says:

    Charlie,

    Another great post (summary).  Use to build custom software and tell you what that is one tough business.  But you give and then you receive.  Had been stiffed a couple of times more because of trust and not really doing my research of the company to verify what they said was true.  Shame on me…But those paying clients always had understanding.

    Dave

    http://www.BusinessAdviceDaily.com/

    Reply
  7. Charlie (Green)
    Charlie (Green) says:

    Michael, you mean like in financial planning and advisory businesses?

    Simple: refunds and discounts are hardly the only way to demonstrate integrity, in fact not necessarily the best.  If you act from a place of integrity, it will show up at the appropriate place, at the appropriate time.

    Note the examples above were from situations of a dissatisfied customer.  If refunds are not legal, then I might say, "Look, this has not worked out, and I’m sorry, and I’m responsible.  I don’t want you to suffer for it.  Let’s talk about what I can do to make it right for you."  And then talk, jointly, with the client.  I don’t know what the answers are–free advice, a referral to someone else, taking time to talk things through. 

    And remember, responding to dissatisfied customers is not the only way to demonstrate integrity.  Maister demonstrates it up front through his offer for a refund.  I sometimes do it in the sales process by specifically suggesting a potential client talk to a competitor in addition to me, and giving them the competitor’s contact info.

    You can demonstrate integrity by being transparent about your service offering; for example, I find the financial planning industry gets lost in discussions about fee-only vs. commission–the real issue the clients want to know about is simply, how do you get paid, and roughly how much?  They just want transparency, not a justification.

    Or, demonstrate integrity by making testimonials readily available.  Or, do it by offering samples–this is a great method for complex intangibles businesses.  See, for example, my article on "Selling by Doing, Not Selling by Telling."

    My suggestion is to have integrity in all things, and it will show up.  As a practical step, consider the four Trust Principles:

    1. Be client focused for the sake of the client

    2. Behave collaboratively

    3. Focus on the medium-to-long term

    4. Be transparent.

    Reply
  8. Ian Welsh
    Ian Welsh says:

    I’ll add that in a relationship (a series of interactions) there are often ways to "make it up" later down the road.  So you may not be able to give a refund, but you can do things for them later which show you wish to make amends.

    Reply

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