The Hidden Costs: Prevent Refunds and Chargebacks
Refunds are an unfortunate part of business, and here at ThunderTix, we occasionally have to provide them, too. The problem is that there are direct and indirect costs associated with refunds, so it's worthwhile to avoid them and increase your profitability. Let's examine ways to prevent refunds and chargebacks from the very start of the purchase process.
For events, lost ticket revenue is only one part of the equation. In the case of a sellout event, the loss is amplified; not only did you lose the initial revenue, but when the event is past, there is no way to recoup the loss. That refunded ticket is a double whammy on profit.
Let's take the example when real physical goods are involved such as an included meal or a t-shirt. Since there is a cost to produce every hard good, they have an even greater impact on profits. Prices for merchandise provide for generally razor thin profit margins after making up for the cost of the good. When a refund is provided, not only did you lose the slim margin, but you had to pay for the production of that good.
Indirect costs included staff time to handle the refund process and a loss of efficiency. Moreover, when credit cards are involved, refunds usually carry a loss of an additional percentage of around 3% charged by your gateway plus any applicable fees. Chargebacks -- when your customer reports fraudulent use of their credit card or that they haven't received the item -- carry even higher costs with incurred penalties of as much as $55 each.
How to Prevent Refunds and Chargebacks
So, let's talk about ways you can reduce or prevent refunds and chargebacks. First, make sure your event includes a clear description of details, so customers know what to expect. Tour operators, for example, should indicate their prompt departure time, tour length, and what is included in the ticket price to avoid disappointment or missed tours.
Instead of creating tickets with special pricing with names like "Child" or "Military", consider labels that include admission criteria such as "Child under 12" or "Military with ID". Use ticket descriptions to add additional information.
Have you ever paid for an event and forgotten about the date? This is the surefire way to receive a refund request. Consider adding email reminders to your events, so customers don't miss productions. We'll send an automatic notification 3 days prior to the event. Not only will you prevent frustration, but you have the opportunity for upselling at your event.
Don't forget to add refund and purchase policies to your account settings. At times, you can point to these to successfully prevent refund and chargebacks.
Danger, Danger, Will Robinson!
Food allergies have become more common, and aside from being potentially dangerous to a customer, they can come with demands for refunds or more costly chargebacks. If you use our product or survey option to allow customers to select food restrictions with their ticket purchase, make sure you clearly label when common allergies such as tree nuts or shellfish might be included.
Of course, make sure you honor food requests. I went on a food tour in Madrid which -- during the purchase process -- asked customers to identify themselves as vegetarian or pescatarian as desired. When one of our fellow tourists arrived, he was disheartened to hear that no accommodations were made for him.
Do make sure you answer refund requests promptly. Some gateways like Authorize.net allow voids when they are processed on the same day. (Check your gateway for information and availability for refunds and voids.) These often carry no charges or fees. In expected sell-out events, you can easily make up the lost revenue when voids or refunds are performed quickly.
Remember the Golden Rule
If you receive requests for refunds, consider instead providing a credit towards future events when warranted. If customers agree, you can create a coupon representing the full dollar amount for them to redeem at any time. Make sure you limit their usage to "1", so the coupon cannot be reused.
Finally, consider the refund request from the customer's perspective. Sometimes customers deserve a full refund or even partial refund when the experience was poor or if an event was cut short. Treating customers as you would like to be treated means you'll reap the rewards of repeat and word of mouth business.