Profits, Sales and Selling

Risk Reversal (or) You could increase sales by 300% without increasing marketing spend at all


Yes, it sounds too good to be true, and truth be told, there is a catch. The catch is that you need to take on more risk – but the secret is it’s no risk at all. In reality, you’re making a calculated gamble, one that you’re near guaranteed to win.

You see, in your average customer interaction, you ask the customer to bear the risk. They pay for a product or service and if it’s defective, doesn’t do what it says, or doesn’t satisfy them in some way, they lose out. They’re taking a gamble with you, and with a history of slick salesmen and devious dealers shifting shoddy wares, the risk they are taking is quite real. YOU know the value and quality of your work, but THEY only know what you’ve told them, and they’ve been taught that they can’t trust you.

This becomes a “barrier of entry”. That means that there’s a reason in front of the customer NOT to buy your product. This barrier of entry is what is standing between you and a dramatic sales increase.

So lower the barrier of entry – reverse the risk.

The barrier is that the customer is worried that the product or service they’re taking on may not be all they expect. The barrier is that they are taking a risk with you. So how do you lower the barrier? You take the risk away from them, and shoulder it yourself.

You tell them that if they are not satisfied with your product or service, you’ll give them a full refund or replace the product.

Sounds like a risky move, right? I mean, what if people take advantage of you? What if they use the product or service for awhile and then return it when they have got what they needed out of it. You’re left in the dust.

This is a legitimate fear. Even a possible scenario. But historical statistics tell you that it’s improbable that your customers return for the refund, and near-guaranteed that this approach increases your sales.

You can safely take this bet, because where the risk to the customer is quite real, the risk to  you is actually minimal. And if you don’t believe that, then believe history: there are those that have paved the way before you. The most common scenarios are that companies double or triple their sales by introducing a risk reversal statement, with a maximum attrition of only 5%. Even if you only increase your sales by only 50%, who cares that you’re losing 5%? You’re still increasing your overall sales by 42.5% (100% original sales + 50% new sales = 150% x 5% returns = 7.5%. 50% increase minus 7.5% = 42.5%).

You do the math using your company’s own statistics and see what that the real numbers for you are.

Let’s do an example:

Let’s say you typically sell 1,000 products a year, which bring in £500 each. That’s a total annual sale of £500,000, and at an estimated gross margin at 25%, making you £125,000.

Introduce a risk reversal strategy and let’s say it increases your sales by a conservative 50%. Remember you are significantly lowering or even removing all barriers to entry. That brings you to 1,500 sales, which now gives you a profit of 1,500 x £500 x 25% = £187,500.

Even if 5% of your customers take you up on your guarantee (and that’s the highest across most companies – it’s likely to be a lot less), then you have 75 returns. The cost of this ‘wastage’ is actually only 75 x £500 x (100% – 25%) which is £28,125.

So even if you take away the costs involved in the 5% returns, then you’ve still made a profit of £159,375 – which is £34,375 more than you were before you introduced the risk reversal strategy – and you didn’t even spend any money to do it! That’s a 27.5% increase in profits – and that’s assuming you can’t resell these returned products!

So the reality is, you’re not really taking much of a risk at all. To the customer, it shows that you fully and completely believe in your product or service enough to take on the risk yourself – it proves to them that you can be trusted. As long as what you’re doing is what you say you’re doing, then only the smallest percentage of people will demand a refund.

The best part is incorporating a risk reversal into your marketing and sales messages will cost you near nothing: any benefit you gain comes at pretty much no cost.

Reversing the risk: a step by step guide

Alright, ready to take the plunge and start increasing your sales? It’s probably best not to jump in the deep-end here and, instead, do some trials and tests.

There are different levels of risk reversal, so you can start lower in the hierarchy and work your way upwards.

Minimal Risk Reversal

This is where you burden some of the risk – for the things you essentially have control over. For example, if you were selling televisions, a partial risk reversal would be offering to replace or refund the television should it be found to be defective.

Full Risk Reversal

This is where you accept the burden beyond just the actual quality of the item. That means accepting if the customer is dissatisfied in any way at all, even if they just have decided to change their mind. So in the TV example, you wouldn’t just offer a refund if the television was defective, but if the customer wasn’t satisfied in any way at all – even if it just doesn’t “look good” once it got home.

More Than Full Risk Reversal

This is where you not only accept the full risk of the customers’ dissatisfaction, but if they are dissatisfied, they leave with a little bit extra – for the inconvenience. So in the TV example, you could offer the TV with a gift of, say, a CD holder, and if the customer were to return the television, then you offer to refund the TV but let them keep the CD holder. You could offer a free gift, a report or information of some sort, or even a voucher. Get creative and up your value!

 

Remember, although it seems like you might make a loss from the returns here, it’s proven that these tactics will increase your sales dramatically enough that any loss made won’t dent your profits.

But you don’t even need to take that as gospel – try it out! Start with a campaign that includes a Minimal Risk Reversal statement in it. Measure the results. Then try one with a Full Risk Reversal, then one with the More Than Full Risk Reversal. Test, test, test – that’s the only real way to see what is going to work best for your company.

That said, we can guarantee that this strategy will work. And you’ll have your money back.

About Shweta Jhajharia

Shweta Jhajharia is partner and principal coach in Europe’s largest Business Coaching firm in ActionCOACH. She has been awarded the “London Coach of the Year” consistently since 2009.
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