Beware of Refunds – or How to Count Eggs and Chickens

Just because a sale has gone through the initial payment doesn’t mean you should go and spend that earned commission or referral as soon as you can get access to it.  I’ve been dreading this day – my first chargeback – but at least I was expecting it and my account balance is prepared to take the hit.

From the anecdotes I’ve heard, most online businesses can expect refunds or chargebacks to be made for anywhere from 5-10% of the total sales made.  While this might be a useful baseline, you should also take into account the specifics of the advertising program and the consumer deal that the referral depends on.

In my example, Dreamhost offers all customers a 97 day refund for 100% of the cost.  This is great for new users who want to try it before they buy it, but if anyone does cancel before that time is up, then the referral bonus is reduced to a big round zero.  Totally fair – no sale, no commission!

However, I could have requested for that money to be paid out.  If my balance had been zero when the chargeback struck, I might have been in a little bit of a situation – possibly even triggering a withdrawal on my debit since its already on file with them and authorized for their use in renewals.

Hey, if I owed them money I’m gonna pay up, right?  This is why you gotta stay ahead of the game and not go around counting eggs as if they were chickens.  The initial sale may go through and be verified, but its still just an unhatched egg in my accounting book.

But its fine.  Patience is a big part of this online business game.  I’ve mentioned before that work you do today probably won’t pay off until at least a few weeks or months have passed, and you can almost never point to a single moment in time where you reached the critical mass that bumped your essential keywords to the next level of search results and traffic.  It can be tough if you’re relying on online income to pay the bills, just be aware of the risk involved with cashing out completely on these advertising accounts.

Just make sure you take this stuff into account.  Try to find out from someone else in the programs you use if the return rates are “average” and assume that 5-10% is the going rate of return unless someone indicates that a certain product is higher or lower.  So far, Dreamhost is a little lower.  My coupons have gotten more than thirty people discounts on webhosting with them, and only one member has decided they weren’t going to continue with the service.

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