I will admit it; I am obsessed with customer service. For a small business owner, there is no better return on investment than providing outrageous customer service. As a business, it costs absolutely ZERO to provide your customers great customer service, and the return is always substantial and significant.

What is one of the fastest and most immediate ways towards happy customers? Your return policy.

I recently consulted for a small retail business that had 50,000 customers come through their single location each year to buy skin care products and services. Prices ranged from $35 for a retail product, to $1,400 for an aesthetic service package. The owner had been in business for 10 years, and had maintained a steadfast return policy- all sales were final and no returns regardless of circumstances. On the bottom of each receipt there were multiple warnings for those even contemplating a return.

The owner justified the draconian return policy with the thesis that allowing returns would cost the business dearly- but a simple analysis proved just the opposite.

On average, the business dealt with one return a week. Assuming they were all retail products with an average cost of $20, and they could not be resold (most could), the total cost to the business would be $1,040. Assuming all the returns were packages for a service, at a sale price of $1,400, the refunded revenue would be $72,800 (costs for these services was $35,000). The business had annual revenues of more than $3 million a year. In the absolute worse case scenario, returns could amount to less than 1.5% of sales.

But the intangible costs were much higher- because of the adage

the happy customer may tell no one, but the irate customer tells everyone.

And for this business, 52 customers a year proceeded to tell EVERYONE that they couldn’t return an item or service. They tweeted about their experience, they wrote posts on the company Facebook page, they wrote scathing reviews on Google+.

With each negative review, the manager and staff went into “panic mode.” Countless employee hours and resources were spent trying to refute the reviews, responding to credit card charge backs, and contacting the customers to persuade them to recant their online postings.

Presented from this perspective, the business owner eventually adopted a new return policy. Now when a customer asks for a return, the employees immediately say,

“We are more than happy to return your item…would you like the money back on the same card?”

What is the return policy of your business? Does it make financial sense, and more importantly, does result in happy customers?