A compelling guarantee can be one of the most powerful weapons in your marketing arsenal.
When I started in marketing, I worked for a publisher who REFUSED to guarantee his products. I thought he was being incredibly short sighted.
I felt that if he’d let me at least test a guarantee, we could have increased sales 50% or more, pretty much overnight.
Guarantees almost ALWAYS increase both your total sales AND your total profits.
And they’re such an important part of the direct marketing world, that you absolutely need to know the ins and outs of how guarantees work, and how to create a guarantee for your products or services that boosts conversions, sales, and profits.
And if you’re thinking, “But my type of product or service can’t be guaranteed,” make sure you read to the end. Because I’m going to also show you how to use guarantees when you’d think you couldn’t.
Back to that publisher I worked with. He was scared. Scared he’d get ripped off.
How many people will ask for refunds if you offer a guarantee?
Across the board, there’s a general trend. If you sell a great product, you’re going to get less than 10% refunds. Even if you sell really hard, with a generous guarantee.
Sell a bad product, and that’s not the case. Sell a bad product, and your refund rate can skyrocket up to 40%, 50%, or a whole lot higher.
What you should know about this is that if your product is so bad you can’t guarantee it for fear of this level of returns, you shouldn’t be selling it.
But that wasn’t the case with the publisher. He sold a great product, that his customers loved. Rather, he was actually concerned that folks would download his training products, use them, then ask for their money back. Blatantly and intentionally rip him off.
Would that have happened? Absolutely. But only in a very small segment of the population.
And for those folks, you can actually black-list them. If you’re able to figure out that someone is abusing your guarantee, you can take measures to stop them from buying from you again.
But in general, you’re actually doing yourself and your good customers a disservice if you let these few bad apples spoil your entire guarantee strategy.
Here’s why this is important to understand…
You’re going to guarantee it anyway, why not USE IT?!
You may or may not know, but unless you’re selling physical products at retail, most countries including the US actually require you to offer a customer a refund if they’re dissatisfied.
That is, if someone complains loud enough to the right people, you’re going to have to give them their money back, like it or not.
And in fact, most disgruntled customers won’t even go to that route. Instead, they’ll tell their credit card company that the charge was unauthorized, and ask for a charge back. They might be wrong, and they might be lying, but they’ll do it anyway.
And if you’re like the publisher I worked with, when customers were unhappy and they came to us, we’d be forced to tell them no. But if they kept complaining and taking up our time, we’d eventually give in and give them their money. Most businesses who don’t have a guarantee have a similar approach.
In all three of these cases, you’re having to deal with all the time and money costs of a guarantee, but you’re not benefiting at all from it.
Maybe the total number of refunds that slip through is a bit lower this way than if you make your guarantee public, but I’ll be the headache is just as big — if not bigger.
And here’s the kicker…
In nearly 100% of cases, a strong guarantee will increase sales far more than it will increase refunds!
So… If you’re going to have to give refunds anyway, why not use your guarantee for marketing advantage and to increase sales?!
The math of guarantees.
In nice round numbers, a guarantee can very easily double sales.
So, if you had 100 sales before, you have 200 now.
But, it can also increase refunds.
Let’s say your average refund rate with no stated guarantee was 1%. So out of 100 sales, you’d keep 99.
And although it’s pretty rare that this would happen, let’s say your guarantee increases refunds by 20X — to 20%. (This is ludicrous, but I want to show you the power of a guarantee even if you have high returns.)
So, for every 100 sales, you’d now keep 80.
But remember, this guarantee doubled your sales.
So with this guarantee, you’d keep 160 out of your 200 sales.
So, just so we’re clear here. No guarantee, 99 sales. Guarantee, 160 sales. And that’s with really, really bad math.
Now, let’s add some dollar figures.
Let’s say to get those 100 sales, you spend $1,000 on advertising.
The sales are $50 each, and 50% of the purchase price goes to cost of goods sold and fulfillment. That means each sale adds $25 in profits.
Here’s the money math under the no guarantee scenario…
99 final sales at $25 net profit each is $2,475. Subtract the $1,000 advertising expenses, and you’re left with $1,475 in profits.
Now here’s the money math under the guarantee scenario…
160 final sales at $25 net profit each is $4,000. But the advertising expenses are still the same. Subtract the $1,000 and you have $3,000 in profits.
With no guarantee, your profits are $1,475. With a guarantee, your profits are $3,000.
That’s 103% higher profits from only 61% more completed sales, and the same initial cost!
Now let’s play a little imagination game…
Let’s imagine that you’re going to reinvest all your revenue from this campaign back into itself, and you’re able to make the math continue to work out exactly the same.
Let’s say you have a 1-month cycle for these sales — so each of the above calculations represents what happens in 1-months’ time.
So, let’s say you were to reinvest the $1,475 from the no guarantee scenario into getting a second month’s worth of sales… And the $3,000 from the guarantee scenario into getting a second month’s worth of sales…
And you were to keep doing that over and over again for a year, starting from your initial $1,000 investment in each scenario…
After 12 months of reinvesting your profits into new advertising… Letting your profits compound…
In the “no guarantee” scenario, you would have made $106,048 by the end of the year. Pretty cool!
But in the “guarantee” scenario, using the math above, your initial $1,000 investment turns into a staggering…
Now I know this hinges on a TON of assumptions that would not play out in the real world. I’m not telling you that if you simply guarantee your product tomorrow, you’ll have half a billion dollars by year-end.
But what I’m trying to do is illustrate that when the math of your guarantee works out, it can have an enormous positive impact on your business!
This is running longer than expected, and I don’t want to rush the “how to” bit. So tomorrow comes the “how to” of creating and presenting a powerful guarantee…
Yours for bigger breakthroughs,
Editor, Breakthrough Marketing Secrets