Many contractors refuse to refund unhappy customers for a variety of reasons: The customer is unreasonable, idiotic, crazy, just trying to take advantage, or just plain wrong.

I'd agree with that assessment in many instances. In fact, my experience is that 3 percent of the people in this world have been put here mainly to antagonize us. If you understand this, build the 3 percent cost into your price structure. Then you can gladly - or, at least, not grudgingly - refund the 3-percent customer and save yourself a lot of grief.

When you encounter a customer that you're simply unable to satisfy despite repeated efforts, enter the name and address into your computer with a red flag. When they call again (yes, they'll call again despite having called you every name in the book the last time) politely decline their business. You might even recommend another company - a competitor you wouldn't mind seeing bogged down with this type of customer.

A few years ago, I became general manager of a service company that, prior to my arrival, had a philosophy that any customer not 100 percent satisfied would get a refund. I was 100 percent committed to this, but my mandate was to turn this money-losing company around. As a result, I hated seeing any tiny bit of revenue walk out the door.

Instead of dumping the refund policy, we focused on improving our service quality and technical capacity. I personally took over speaking to every unhappy customer to focus on how we could improve our service.

What was amazing to me was that in almost every incident, if I kept an open mind, I could relate to the customer's feeling. Interesting enough, most didn't want a refund. They wanted to be listened to and assured that we cared. I got the feeling they already had used other contractors, had come to expect poor service, and were trying to ensure that in the future, they would be taken care of.

Discount Plan

Another challenge is what I call "the professional customer." I recall one example vividly: A lady contacted us voicing displeasure with our service, berating our technician and demanding a refund. Based on her story, we should never have accepted her money in the first place. I thanked her for bringing this to our attention and assured her she would receive a refund.

But - you guessed it - after I reviewed the situation, I found some interesting facts. Our technician assured me that the service call wasn't anything close to the horror story she had told. He said he'd thought she was a delightful woman and had had a pleasant conversation with her, though his side of it had been slight.

At first I was shocked that his version could be so opposite of what this customer had described. Then I pulled up her service history and learned that we had conducted six tune-ups and two service calls over the last six years - and we had refunded her money on every single call!

Why hadn't this been discovered before? Obviously, ineffective management. This was an example of how good policies are different from, and not a substitute for, good management. Here we had a well-conceived policy that was costing our company because we implemented it without effective management.

Firing Customers

First, I refunded her money, and was glad to do so. Why glad? I'd just learned something important, and this discovery allowed us to take corrective steps. We entered this customer into the files as a "DO NOT SERVICE." That meant that the next time she called, we informed her as tactfully as possible that our company could no longer call on her because of the history of dissatisfaction.

Firing a customer is a difficult step in this competitive world, when we are always striving to capture more business. But it is sometimes the best thing you can do for your company.

Now you may ask, if you're going to fire this customer anyway, what's the point of giving her money back? The answer is because refusing a refund can cost us in other ways:

• Your time is valuable and can be better used in productive management than handling ceaseless calls from an unsatisfied customer.

• Battling customers is a mental and emotional drain on managers that leaves us less able to do our best work for our companies and our other customers.

• A lousy customer is a vindictive customer and will make it his or her business to tell everyone how terribly your company performed.

Even the best company is going to have a bad day and fail once in awhile to meet its own standards of customer service. You know that. But have you ever looked at those bad days as opportunities?

It's a fact that if you handle it right - acknowledging your error, correcting it and offering a refund - you can actually build customer loyalty even when dealing with an unsatisfied customer.

Charlie Bonfe of Bonfe Heating in St. Paul, Minn., recently shared with members of Plumbers' Success International how his company is building customer loyalty by taking every step to do what's right for the customer. Bonfe reviews every invoice. When he finds any service recall, he writes a letter of apology for the inconvenience. He also reviews charges, and if he finds any overcharge, he sends the customer a check, even when there has been no complaint.

Bonfe says, "You can't believe the number of customers who call me up after receiving an unexpected refund, expressing their gratitude at our integrity and honesty." He believes this is one of the reasons the company has grown significantly each year since opening in 1991.

In a time when contracting companies are looking for more cost-effective ways to bring in customers, maybe we should look at superior service - including refunds, when necessary - as a marketing tool. It's a relatively inexpensive way to develop customer loyalty and get our customers to promote our services for us.