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What Is 'Risk Reversal'?

Risk Reversal is a strategy that transfers some (or all) of the risk of a transaction from the buyer to the seller. The seller agrees to make things right in advance if the purchaser doesn't end up satisfied. Risk Reversal is a great way to eliminate some Barriers to Purchase.

This strategy may be feel uncomfortable to the seller as well, because no one wants to lose. The difference is that a seller can spread that risk among many customers. The customer can't do the same.

By eliminating the risk of purchase, you'll close more sales and eventually make more money than what you'll lose if some customers take advantage of your generosity.

Josh Kaufman Explains 'Risk Reversal'

People always hate to lose. They hate to feel stupid. They hate to make bad decisions or waste money. They hate to take risks.

When it comes to closing sales, you are that risk.

In every transaction, the purchaser is taking on some risk. What if this doesn't work as promised? What if it doesn't meet their needs? What if purchasing from you is a waste of money?

These questions are always in the back of your prospect's mind as they're considering purchasing from you. If you don't eliminate them, it's very likely they'll ruin the sale.

Risk Reversal is a strategy that transfers some (or all) of the risk of a transaction from the buyer to the seller. Instead of making the purchaser shoulder the risk of a bad transaction, the seller agrees in advance to make things right if-for whatever reason-things don't turn out as the purchaser expected.

Take the bedding industry, for example. Look around, and you'll see a lot of over-the-top offers: 12 month, 100% money-back guarantees, no-questions-asked! A customer could sleep on a bed for a year, decide they don't like it, and call up the store to return it for a full refund. Crazy, right?

It's not crazy at all: this strategy completely eliminates the purchaser's perception of risk, which is a major Barrier to Purchase. If a customer makes a purchase and it doesn't work out, they don't have to feel stupid about wasting their money, and don't have to feel angry at the company or at themselves for making a bad decision. All they need to do is take advantage of the guarantee and return it-no big deal. As a result, they'll go through with the transaction-there's no downside, so why not?

Colloquially, this approach is sometimes called the "take the puppy home" strategy. If you're undecided, the pet store will tell you to take the puppy home. "If it doesn't work out, you can always bring it back."

The puppy almost never comes back, of course. Without making this promise, though, the puppy might never go home in the first place.

Adopting a Risk Reversal strategy is naturally uncomfortable because sellers also hate to lose. No seller wants to feel used or taken advantage of, and it's often easy to feel that way if a customer obviously gets value from the offer and asks for a refund anyway.

The difference is that the purchaser is purchasing from one seller-the seller is selling to many purchasers. Your customers experience this risk with every purchase they make, and it's a big deal. You're serving many customers, so you can spread the risk of a return among many customers.

Yes, you'll lose money on customers that are obviously taking advantage of your generosity, and that never feels good. In compensation, by eliminating the risk that the purchaser feels, you'll close many more sales and come out way ahead in terms of total revenue and profit.

If you want to maximize your sales, it almost always makes sense to offer a very strong, risk-reversing guarantee, and to extend the risk-free period as much as possible. If you don't already have a risk-reversal policy, implement one and you'll see your sales increase.

Questions About 'Risk Reversal'

• How can you convince your prospects that this is a zero-risk transaction?
• What risks can you transfer from the prospect to yourself?

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"If you want a guarantee, buy a toaster."

Clint Eastwood, Academy Award–winning actor

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