Originally entitled FTC Rule 429, rescission was not intended to be a “Federal Satisfaction” guarantee or “buyers remorse” insurance program. The rule had the limited purpose of correcting the specific problem of sales being obtained through high pressure or deceptive sales tactics. In surveys taken as to why customers rescind, the majority of customer responses included phrases such as: “The price is too high”, “We don’t see the value” or “It was not competitive with other prices we received”. Within many responses were phrases such as: “We didn’t believe the discount(s)” or “The salesperson was ‘high pressure'”. Then there were those who felt uncomfortable with the need to buy immediately.
Most of these responses don’t meet the requirements or purpose of the law, however, the contract is usually rescinded.
Buyers remorse is a natural psychological condition, however, the previous statements bear out the fact that a high percentage of rescission is due to a malfunction in the sales process. If you are selling a big ticket item (i.e. $20,000 to $30,000 or higher) versus transactions of $5,000 or less, chances are you will experience a high percentage of rescission. If a customer perceives a price difference instead of a value difference, this frequently leads to rescission. Issues such as the source and style of the lead, perceived needs by the prospect, the size of the contract and cash versus finance also will affect the rate of rescission.
However, if your company is using outdated sales methods, utilizing multiple “drops or discounts” or if value is not established before a price is quoted or an incentive is offered, the chances are that your rate of rescission is higher than it should be.
If your average contract is $4,000 or less, a rescission rate above 2 or 3% is unacceptable. On contracts of $5,000 to $10,000 – rescission can range from 4 to 10%. Contracts from $15,000 to $25,000 vary, although it is not uncommon for rescission rates to exceed 20%. High need products like roof replacement and HVAC systems experience much lower rescission rates than sunrooms, conservatories and decks. Low end, low price products and/or those purchased after much shopping have a much lower rescission rate. Those who use rescission as a means to close are unwise to do so and may ultimately destroy their sales methodology.