Risk reversal: why Jay Abraham swears by this powerful tool
All business transactions contain some kind of risk. If you ask a potential client to take on all the risk in a transaction, their first inclination is not to buy. What if something goes wrong? They’ll be the ones who lose. But take away all the risk for your prospective client and you’ve eliminated the primary obstacle to buying. Instead of a reason to say “no,” they only have reasons to say “yes.” This is why so many businesses have established a risk reversal option strategy.
Here we’ll cover why risk reversal is such a influential tool as well as best practices to incorporate one of Jay Abraham, founder of The Abraham Group’s favorite, powerful sales tools that can improve your business anywhere from 40-400%.
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What is a risk reversal?
Risk reversal is a process where you identify areas of risk and turn them into opportunities. For businesses, it often means removing the risk from their clients and placing it entirely on the business. When you learn how to use it in a simple and logical manner, it can help your business grow.
When you supply a risk reversal option, it makes it so your client has nothing to lose by purchasing your product. If they are dissatisfied, they know that you will do whatever it takes to remain true to your commitment to their satisfaction. Even if you don’t have risk reversal at the heart of your current sales messaging, your business likely offers a form of risk reversal to your clients right now.
The heart of risk reversal: the guarantee
At its core, a guarantee is a promise that your product or service will perform as promised. A good guarantee takes all the risk away from the client and puts it on you, the seller. One key element in crafting a guarantee is to have a specific vision of what result(s) your client wants from their purchase. Then guarantee that outcome or their money back. When you’re working on your risk reversal option strategy, consider this guarantee and your client’s vision.
However, for many of us, a basic guarantee is just that: basic. In business domains with keen competition, you need a better benefit than a basic guarantee to stand out. Jay calls this the “better-than-risk-free” (BTRF) guarantee. This next level of risk reversal acknowledges and rewards your client for the value of their time and faith in purchasing from you. This means not just giving them their money back, but promising an additional reward that compensates for them having taken the time and effort to purchase from you. Who can say no to something like that?
Jay has used BTRF for his own live events, letting people preview his methods via videos, audio recordings and in writing before they even signed up. Those who did sign up received $5,000 worth of materials six weeks before the event that they were encouraged to read, listen and watch, then apply to their business. If they didn’t see results, they could cancel their attendance and keep a significant portion of these materials. But it goes even further: once people came to the program, they could attend up to half of the program before Jay considered their commitment binding. So if by early afternoon of day two of a three day program someone felt they had not received over $5,000 in value, they were welcome to leave with a full refund, no questions asked and no hard feelings. Tony has a similar policy for his live events; for example, people who feel that they’ve not received $1 million dollars of value after attending the first full day of Business Mastery can easily get a full refund. Other examples of this kind of better-than-risk-free guarantee include double your money back or receiving a bonus with purchase the client can keep even if they ask for a refund.
Compensating your clients for their dissatisfaction is the core of a better-than-risk-free guarantee. Though these guarantees are seldom used, they create an extremely powerful advantage for your business over your competition.
How does risk reversal work to increase sales?
The automotive industry has done years of research to understand why people make the buying decisions that they do. The biggest discovery is that people don’t buy because we don’t want to make a mistake that makes us look bad to our peers. But risk reversal means that it’s now impossible for your clients to make a harmful mistake. Providing a risk reversal option means that they can get out of their purchase, even after they make it.
Draws clients to your business
When your business takes on all the risk, you’re telling people just how strongly believe in their satisfaction. When you’re this confident in your product, people will naturally wonder why.
For example, some parents want to buy their kids a playset for their backyard, but they’re not sure the kids will actually use it enough to justify the cost. They find the same one being sold at two different stores: at the first, the playset costs $500 with free home delivery. At the second, the playset costs $750 but the store has a free trial period of 45 days: they’ll deliver and set up the playset, then let the kids use it. At the end of 45 days, the parents can either pay the $750 or have the store come pick up the playset for no charge, no questions asked. Which would you choose? (We bet it’s the second one.) That’s the draw of quality risk reversal.
Strengthen your unique selling proposition (usp)
An increased guarantee is often an excellent addition to your unique selling proposition (USP). Offer your client specific outcomes or results and you’ll normally perform even better to exceed those expectations. Your client ends up with better-than-expected levels of service, performance and quality and you end up with a raving fan for life.
For example, one of Jay’s past clients was an architect that offers a simple pledge: if his client is unhappy at any stage of the project, the architect refunds previously paid fees and redoes the unsatisfactory work for free. Using this promise as a keystone of his USP caused his business to thrive. An increased guarantee frequently results in increased profits.
Risk reversal pros and cons
Like any business tactic, risk reversal comes with pros and cons. Many risk reversal options come at little to no cost to the business. They are also favorable in terms of risk-reward. When designed correctly, most people won’t be able to turn them down, meaning that they have unlimited earning potential. Since they are established based on a customer achieving satisfaction from your particular product, risk reversals can also be used in a variety of different situations and businesses.
There are some cons to imposing a risk reversal option strategy in your business. Sometimes, the margin requirements can be large. You can also lose with a risk reversal option if you aren’t clear about what your client’s idea of a guarantee is. If you don’t know what will make them happy, you can’t promise to achieve satisfaction. Establishing your risk reversal option strategy before knowing this information could lead to your option failing.
Risk reversal best practices
If you want to see success by implementing a risk reversal option strategy, here is a list of best practices that you must follow.
Make promises you can keep
Start out by making a list of all the different ways you can 100% guarantee, better-than-risk-free guarantee or at least partially guarantee your client’s transaction. If you can’t offer a complete refund, what value can you add to offset your client’s potential risk? Risk reversal is a method of cementing customer confidence, so make sure you only promise what your business can actually deliver.
Be concrete and detailed
Instead of “satisfaction guaranteed,” what if you say “unconditionally performance-guaranteed for 30 days”? That already gives a better idea of what the client can expect, but it can go further. What about a skincare brand that promised “100% money-back, 90-day guarantee if you can’t honestly state your face looks more youthful and radiant with more even color and elasticity. If you don’t enjoy results this good or better within the first 90 days of using our product, we don’t deserve to keep your money. You have every right to ask for a full, no-questions-asked, on-the-spot 100% refund anytime you decide.” See how the details underline what we can expect from this brand’s products?
Paint a picture of satisfaction
Define and explain exactly what satisfaction will look like for your client. Details about performance or specific results, like in the skincare example above, allow your client to understand what they can expect when purchasing your product. With this clear image, they can easily see that they have a greater risk not buying your product or service. Remember that clients are not buying a product or service; they are responding to the advantages your product or service will produce for them. So help them clearly focus and appreciate exactly what result they can expect. The more specifically you tell people what “satisfaction” looks like, the more compelled they become to act in order to receive that benefit for themselves.
Understand your clients’ obstacles
When developing your business’s risk reversal option strategy, start by making a complete list of every barrier to your clients choosing you over your competition. Once you have this list, break these obstacles into these categories:
- Financial obstacles: These can include the initial costs of doing business with you or financial loss if the transaction doesn’t work for your client.
- Emotional obstacles: How bad would your client feel if the purchase or commitment with you fails to perform?
- Measurability: Is it possible to tangibly measure the impact your offering can have on the client’s life or business? What metrics of measurement and evaluation will your clients use to judge their satisfaction level?
Give them more time
We’ve all had experience with basic 30-, 60-, 90-day money-back guarantees. Jay’s found that the more time you give people, the more likely they are to buy. So usually a 60-day guarantee will outproduce 30 days by 20%-100% while full year or even longer usually beats 60 or 90 days.
Test, test, test
When looking to leverage the best risk reversal method for your clients, test which guarantees are the most attractive to them. Small tests can yield rich information and results you may not have expected. Implement your risk reversal option with a few prospects or clients or ask one salesperson to offer it for a day or so. See how much better clients respond before you incorporate it continually or system wide.
For example, Jay worked with a health club that tested out four different guarantees for new members: trial periods of 30, 60 or 90 days risk-free plus a fourth option that added a written agreement guaranteeing the specific result the client wanted (e.g., lose 23 pounds of fat and turn it into rock hard muscles within 120 days). The free 60-days outperformed the other three tests by a large margin, with nearly 50% of these new clients converted into paying memberships. But the specific results guarantee also worked better than those without specifics. Testing a range of risk reversal options will ensure you end up with the best version of risk reversal possible for your clients.
Don’t give bogus or frustrating guarantees
How many warranty cards have you actually mailed in? We can’t remember either. Many businesses offer pseudo risk reversal policies that actually keep the risk squarely on the client. If your guarantee has high barriers to entry, you’re likely to turn clients off instead of keep them coming back. Take a candy bar maker who guaranteed satisfaction with their product, but required customers to mail in the uneaten portion along with their complaint. The cost of postage was almost as much as the candy and you wouldn’t even get your money back – you’d just get another of the same candy bar. How frustrating is that? Compare this to a large power equipment company that guaranteed clients five working days after receiving any large piece of power equipment to bring it back for a 100% refund, no questions asked. In five years, they only had three people ask for the refund while seeing a 300% increase in sales.
What will risk reversal cost my business?
If you’re worried that switching to aggressive risk reversal will cost you a lot of business, stop worrying. Unless your product or service is flawed – or just plain does not perform for the client – the number of people taking you up on a refund guarantee is negligible. But the increase in people taking you up on the initial sales offer is anything but negligible. Jay’s seen strong risk reversal double and triple sales while only adding ½%-3% in additional refunds to a company’s numbers. (By using the testing strategy you can quickly, safely and definitively determine the difference risk reversal can and will make, which is why you must always test first.)
When there’s no risk in doing something, many more people tend to be more willing to make a purchase. Once they do, most people will continue buying again and again. So if you provide and deliver true quality and value that can be appreciated, perceived, and understood, don’t be afraid to offer risk reversal and see your business boom.
Jay Abraham is a proven business leader and top executive coach in the United States, and a close friend of Tony Robbins. Jay has spent his entire career solving complex problems and fixing underperforming businesses. He has significantly increased the bottom lines of over 10,000 clients in more than 1,000 industries, and over 7,200 sub industries, worldwide. Jay has dealt with virtually every type of business scenario and issue. He has studied, and solved, almost every type of business question, challenge and opportunity. His principles can be the difference between mediocrity and a business that generates millions of dollars in additional revenue.
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