Pricing extended warranties

SparkyAdam

SparkyAdam

Member
Location
Oregon
Occupation
Electrician/Small Business Owner
We offer a one year warranty on all the work we do, covering parts as well. 11 months after project completion my office reaches out to the customer to make sure everything is still working. Some of them have asked about extending the warranty when my office reaches out. We currently don't offer that.

I am typically not interested in such things as I find them unnecessary, but since my customers have started to ask my office about it, I figured I should start to research it a little.

My main issue is that I don't have any idea how to cost or price an extended warranty. Has anyone done this? Would 20% be reasonable to extend it for a year? Not really sure i want to offer it, but if it gives a customer peace of mind then I suppose it's worth it to them.
 
I don't think extending it for a year would do anybody any good. And I don't think adding one year to the warranty should really add anything to the price.

I've worked for various contractors over the years, and some of them want a 2-year warranty while others only want a one-year warranty. My price is the same either way, because if it'll make it a year, there's a 99.9% likelihood it'll make it 2 years

They're probably thinking along the lines of 5-year or 10-year.

In the end, an extended warranty on electrical work is probably a waste of the customer's money, unless you're covering electronics or motors.

But in any case, you probably ought to think about the likelihood that you might go back and how much money it will cost for you to honor the warranty. Then you need to at least double that (spread across those warranty buyers), so that you get paid to go back
 
Warranties become more valuable the more technical the work. If you have a brand new $500,000 fire alarm system, you may very well want to shell out for an extended warranty.

We warranty our work for a year, and pass through our vendor's equipment warranties. Honeywell is usually 3 years and Siemens is usually 2 years. In year 2 or 3, the parts are free, but we charge our normal labor rates. If you have a test and inspection agreement with us, you get a break in the labor rate, and if you get the platinum, the first 2 hours of an emergency call are free. For really large customers, they can get bespoke terms and conditions.

Your warranty extension should be based on your call back frequency. You want to cover those random glitches without hosing your customers. The way to track that is to have a labor and/or material charge code that is strictly for call backs or warranty work. The downside of this is that you have to wait 3-5 years before you have enough data to make a good decision.
 
petersonra said:
20% sounds like a crazy number.

If you have enough volume it is likely it will cost you no more than 1 or 2% a year to service the warranty claims. But the key is to get enough so one claim does not kill you.
Click to expand...
I was thinking along those lines. The other approach is to look at the work you did and assume the most expensive thing breaks and the manufacturer hangs you out to dry. What would it take to cover that, and guess at the probability. If you have experienced a 10% failure rate in a motor you frequently install, then the warranty charge should probably be about 1/10 the cost of replacing that motor.

My late FIL worked for McBride in NJ, and one of his duties was to advise the board on what kind of completed work insurance they should carry. Lots of crystal ball gazing and muttering of incantations were part of the process.
 
There is no way I would warranty a part beyond what the manufacturer does. Labor, however, I will warranty forever. You will not have a problem that was caused by faulty installation. And if you do, I'll repair it.
 
CoolWill said:
There is no way I would warranty a part beyond what the manufacturer does. Labor, however, I will warranty forever. You will not have a problem that was caused by faulty installation. And if you do, I'll repair it.
Click to expand...
Not to forget, the OP is asking about pricing extended warranties, so, beyond the manufacturer's standard warranty and whatever your usual warranty is for labor. It's a binary solution set; yes or no to bid. If yes, how much?
 
You must log in or register to reply here.
Top