Today I issued a full refund to a client. I must admit that my ego is hurt a bit, but this is the only time I've had to do a refund in all the time I've been creating custom portraits - about 9 years now, so that's a fairly good track record.
I tried to create the art in good faith, but due to the reference photo quality and the changes and additions needed, I couldn't complete the artwork to the client's satisfaction.
When someone isn't happy with what you have tried to do for them, the first reaction is defensive about your actions and your artwork. I think it hurts so much because we create our art and we are invested in it.
But we have a choice about how we react.
We can choose to take it personally and tell everyone that the client didn't understand the "creative process." We can try to argue with the client, or try to reason with the client that we can try again.
To get defensive and argue with a client is always a bad idea.
Have you ever tried to return something and had to defend your actions? Have you ever had to really dig your heels in and plead your case to someone higher up? I have, and after I've successfully gotten my money back, I'm left with a negative feeling about that business because of the way they treated me when I wanted my money back.
But the stores we love make returning things very easy. They don't give us any negative attitude. So we return time and time again.
Some artists ask for 50% up front on art commissions, and if it doesn't work out, they keep 20%. This is reasonable on the surface, because of all the work that it involved, even though it wasn't completed. But I think the best way is to just please the person. If you keep 20%, they are going to be irritated, and possibly complain about you publicly. The 20% just isn't worth the risk, and why not make the customer happy? I have a full satisfaction guarantee for my customers so they don't have any risk. (I realize that in some cases, keeping 20% or another amount would be a necessity if your art supplies had to be special ordered, as long as the client knows this in advance).
So if someone asks for their money back, you may feel pained by it like I did, but keep it to yourself. Take your ego out of the equation completely. Cheerfully return the money and get on with your life and the next commission. It doesn't mean you are a failure.