What is Risk Reversal?

Have you heard of risk reversal? This is a concept that we use often with clients at SimplyPHP, and we think it represents our company philosophy well when meeting with new customers for the first time.

Apr 2021 - 3 minutes read

Essentially, risk reversal is a strategy that transfers some or all the risk of a venture from one party to another. In most cases, it involves risk transferring from the customer or prospect to the seller.

Risk reversal is such an effective strategy because it goes against everything we’ve been taught when it comes to sales. Traditionally, a customer involved in a new relationship would have to take on all the burden of the risk. This could be anything from a financial loss (paying for a product they don’t like) to a logistical burden (like being forced to redo unsatisfactory work).

However, when a company embraces risk reversal, they take the burden of risk away from the customer, making it much easier for them to make a decision that favors both parties.

Today, we’ll explain how SimplyPHP uses risk reversal with our clients, and how other conscientious development companies can do the same.

Why Risk Reversal?

One of the biggest changes that a company can make in terms of its relationships with new prospects is risk reversal. By taking the burden of risk away from the individual customer, companies can make their sales strategy much more customer-friendly.

Even if you’ve never heard the phrase ‘risk reversal’, you’ve probably seen this concept in action. Here’s a great example:

Say you want to buy a mattress. You’ve narrowed your final choice down to two companies, which offer a comparable product at the same price point.

Company A has a narrow return policy, and the only place you can try out one of their mattresses is in a brick-and-mortar store. Company B offers a generous, no-questions-asked refund policy with complimentary delivery and return pickup. Which company would you choose to buy your mattress from?

The majority of us would choose Company B. By absorbing all the major risks themselves, Company B makes a complex purchase like a mattress simple and easy for customers.

By breaking down the barriers to purchase, companies practicing risk reversal set themselves up as much more customer-focused, putting them head and shoulders above their competition.

How SimplyPHP Embraces Risk Reversal

As a company that strives to treat all our clients like our friends and family, embracing risk reversal was a no-brainer for the client team at SimplyPHP.

Unlike many other development companies, we don’t lock our clients into ironclad contracts immediately, nor do we require huge deposits upfront. In fact, we’ve tried diligently to ensure that our new clients are never in the position of risking anything when they choose to partner with us.

Since we’ve done the work to make our company robust over our 11 years in business, we feel comfortable offering new clients the flexibility they need when they want to partner with us. We never demand that a company work with us for a week before they can be released from a contract, or charge large deposits in advance before any work gets done.

Instead, we rely on our work to sell our services, and keep customers coming back year after year.

Using Risk Reversal to Offer More Client-Friendly Services

Many development companies who operate according to more traditional norms may initially balk at the idea of embracing risk reversal. However, if you want to open your company up to a broader customer base, it’s a great way to start.

Here are some ideas of where to begin.

Rethink your initial deposit and contract strategy

Many development companies use the same onboarding strategy. After the initial meeting, they ask incoming customers to sign a contract, which is followed by an (often non-refundable) deposit.

If a company is new to the world of development and isn’t sure what they want, a non-refundable deposit may be a huge barrier to entry. Instead of forcing clients to commit when they aren’t sure what they need, the development company or agency should work to help their new client define their needs and priorities. Together, they should be able to determine a mutually beneficial path forward.

Show that you understand your client’s risk

Too many development companies rely on the standard processes to tell them how a relationship with a new client should begin. It’s so easy to get sucked into a billing cycle instead of listening to what your client needs.

Instead of moving quickly to close a new client, show them that you understand the risks they face, and why they may be hesitant. By putting yourself in their shoes, it’s a lot easier to understand their needs.

Want to learn more about how SimplyPHP approaches new client relationships? We love to talk and write about customer service, and offer suggestions for ways that development companies can improve their rapport with customers. We believe that when you’re working from a place of mutual respect and understanding, it’s so much easier to get great work done.

SimplyPHP is passionate about web development, and we love to share resources with current and future clients on the philosophy that drives our company. Want to hear more? You can find our growing collection of articles on our website, and videos and podcasts on our YouTube channel

by SIMPLYPHP
Apr 2021