(Note: I don’t normally describe my software as shareware, but it appears someone on a rather large European shareware developer board has linked to me in a discussion of refund policies. I’m using this post to answer the question asked, and using the title to make sure anyone can find the same information from Google. Why I don’t call myself a shareware author is a good discussion for another day.)

Anyhow, the story in a nutshell. I sell a program which creates bingo cards for US$24.95. My primary customers are teachers or parents of elementary school aged children in the United States. My typical customer is female, in her thirties and is not very technically proficient or very trusting of the Internet. Since the day my business opened on July 1st, 2006, I have had a 100%, no questions asked, moneyback guarantee. I publicly make the guarantee for a period of 30 days past purchase — between you and me, if any customer were to ask for their money back after that period, I would go to any length of effort up to and including mailing them a personal check to get them their money back. I have previously commented on my reasoning for a moneyback guarantee here and am additionally strongly supportive of Steve Pavlina’s rationale.

OK, the part of the post you’ve all been waiting for: in the last six months, roughly 5% of my customers have requested a money-back guarantee. I consider this figure to be abnormally high, as it counts rough patches in my program’s development (version 1.0, the first rollout of the Mac version, and two after-upgrade shakeout periods) which do not happen on a regular basis. For the most mature version of my software (v1.04, which was sold constantly for a period of approximately 4 months without any significant change to the codebase), my refund rate was under 2%. The most common reason cited for people excercising their right to a refund is a variation of “I tried it out and it doesn’t quite do what I want” (I don’t ask but many people tell me anyhow).

Note that that reason is an excellent empirical demonstration of another mechanism by which the guarantee can make you money: it means that at least some of your customers are buying your product when they are not yet convinced that it will meet their needs. The guarantee thus provides a safety net, allowing the customer to externalize the risk of their extended trial period to you, the developer. They think “Well, if it doesn’t work out, I can always return it”. You should be happy to bear this “risk”, as a return costs you little or nothing to process, meaning that this is pure upside from your point of view. (I have never paid a penny as a result of processing a return. Paypal refunds my transaction fees when I initiate a refund.)