The Opportunity Cost of Mistrust

We all suffer – some of us more than others – from the fear of getting ‘stiffed’ by our soon-to-be client.

Fortunately – or maybe not – there is a plethora of lawyers just waiting to sell you protection. Of course, your soon-to-be-client has tapped into the same infinitely deep pool of legal imagination.

Maybe it’s just me, but the business of commercial contracts seems to have gotten approximately 250% more complex in the past decade.

What’s the pitfall in taking all these steps? Of course, there’s the lengthy amount of time and money spent on drafting contracts, sending them out, having both sides review them, back and forth again if any changes are requested. But time is just the first thing to go. Because when you lead with so much mistrust, you’re signaling something.

The signal we’re sending is that we are obsessed with one question: How much money would we risk losing by trusting our customers?

It’s the wrong question. 

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 accommodate it! A pricing policy designed to accommodate 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. I spoke to him a few years ago.

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? That’s the right question.