“Our warranty costs are eating our lunch!”
“What’s going on?”
“There’s a recall from the manufacturer and we have to install a new part. The manufacturer is supplying the part and telling us we have to supply the labor. It’s really expensive.”
“Did you put any warranty cost in your pricing?”
“No. How much should I put in?”
The answer to this question depends on your yearly warranty costs. This was an extreme case with a product recall and replacement. But the company didn’t have a warranty reserve on their balance sheet to take care of this issue.
Generally the warranty expense added to proposal estimates is 1% to 2% of material/equipment costs. However, it is best to calculate your warranty costs for the previous few years and divide that into the equipment/material costs to get your percentage.
I will show you how to account for warranty costs next week.
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Ruth King is well known as “The Profitability Master.” She is passionate about helping small business owners become profitable and stay profitable. For over 40 years she has coached, trained, and helped contractors and others achieve the business growth and goals they wanted to achieve.
Contact Ruth by emailing ruthking@hvacchannel.tv.
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