This transcript was generated from the episode audio and may contain minor errors.
[Music]
How can you handle customer refunds without ruining cashflow? We're gonna hear from an online shop owner today. Her name is Abigail. She's got this handmade leather wallet business. It's going well.
She's got wholesale accounts in multiple countries, but of course she has a challenge. That's why we're talking here today. She's got some refund requests that have been coming in. It's just frustrating. There's a financial strain of these refunds, probably an emotional strain too.
I don't know if she talks about that, but I've always noticed that whenever there's a refund request, it's not just that there's money going back out of your account. It's like, hey, that money's going the wrong direction. I'm used to seeing the money increase in my account. Now it's decreasing. That's not how it's supposed to work, but it's also this, you feel rejected, right?
You feel like this emotional pain of a customer requesting a refund. So that's like a whole other topic, but it is a part of the refund process or the operating process of most small businesses in online shops. So let's see what we can do to help Abigail. Can we make her life a little bit better? And anybody else out there who's selling something or thinking of selling something online, how can you handle refunds and not have this become a cashflow headache?
That's today's question. Detailed version in my answer coming right up. [Music]
Hi, this is Abigail. I run an online shop where I sell handmade leather wallets, accessories, and, you know, other goods. It started as a hobby, but over the past year, it's grown into a real side hustle with wholesale accounts in three countries.
But as of lately, I've had a few refund requests. While I want to keep my customers happy, of course, it's tough financially when these pile up all at once. I know refunds are just a part of the business, but I feel like I need a better strategy to handle them without jeopardizing my cashflow. What would you recommend? [Music]
Hey, Abigail, I hear you.
And let's just kind of keep eyes on the prize to begin with here because you're running an online shop and you're selling handmade leather wallets, and that's cool. And you've built this to where you've got wholesale accounts and, you know, presumably there are some happy customers. You know, you've got this frustrating experience, which we'll talk about, but you've also got happy customers and you've got a small business. You know, it's even more than a side hustle. It is a small business now, it sounds like.
So that's great, well done. Okay, but let's also talk about some practical strategies to handle these refunds. Number one, set clear policies, communicate them upfront. Just make sure your refund policy is easy to find and understand. And this can be a challenge when you're working with wholesalers and distributors because, you know, there are some other steps in the process and you don't have that direct engagement with customers that you would in a DTC or direct to consumer business.
Nevertheless, you know, wherever you can be really clear about it, just proactively communicating that policy. Customers are less likely to request refunds if they understand the terms in advance. Number two, consider offering alternatives to refunds, like exchanges or store credit. Maybe there's something else they want. Many customers will accept this if they like your brand but just want a different item or size or something.
And the tip here is you can incentivize store credit by offering a little bonus. And you don't always advertise this like right at the top of your website, right? But when people go to request a refund, you know, some text that comes up that says get an extra 10% added to your store credit if you opt for this option instead of a refund, for example. Now that can directly reduce your cashflow strain, which is part of the problem here, and encourages customers to think, well, if I don't do the exchange, I'm actually losing something, right? So it kind of nudges them towards that.
And then as a practical matter, you want to build a financial buffer for refunds and make it a fixed percentage of your revenue. So if your average refund rate is 3%, then just kind of understand, okay, I have 3% less income coming in. So I'm either going to physically set that money aside or I'm just going to know that, you know, I'm making 3% less than I have been or that I've been expecting or projecting. Then maybe there's a way I can increase sales by 3% or more by doing something else. So I just kind of look at things as a whole, not just the specific issue, but how can you deal with this and also make things better in some other way?
I just think it's good to look at everything altogether rather than just one isolated issue. How can you improve your business? And there's different ways to improve it. If one thing is frustrating, then yes, let's try to alleviate that frustration, but also do something that makes you happier and makes the business more profitable. Abigail, thank you for calling in.
Thank you for being out there. Everybody out there, thank you for listening. I am so happy to make this show for you every single day. It's always free. Subscribe, follow wherever you get your podcasts, come back tomorrow.
My name's Chris Guillebeau. This is Side Hustle School. [Music]
From the Onward Project.
