Ask the Experts | Charging for Parts Under Warranty

Question: How should we charge our clients for parts that are under warranty?

Gary Elekes; Founder, EPC Training:

If it’s under warranty there’s really two different places that could happen, right? Either it was our install and it’s under your warranty, so that would depend somewhat on how you manage your overall customer experience.

And then there’s the second area which is, somebody else installed it, and your service guy is out there and he or she sees it and it’s a part that’s actually under warranty.

So the easy one is, obviously, if it’s under our warranty we’ve already reserved and organized around that. So what we do – this applies to the second part of the question as well – most companies today are flat rate. So the warranty part, what happens is that when you charge for the time when it’s not your part, when you didn’t install it, you expose your labor rate. So in some cases that’s not a big deal.

If you’re $75 an hour, you’re probably going to be a poor contractor and not make much money if that’s the price, but it’s not likely that somebody will be upset with you – that $75 an hour doesn’t sound unreasonable. If you’re $350 an hour, like we are – $354 – there’s going to be some people who are pretty unhappy about that number staring at them for a condenser fan motor that didn’t warranty, but they’ll have to pay you for the labor portion of that.

So what we do is we create an in-warranty labor rate that’s a specific repair. So any time that we deal with a call that’s an install or a service call that wasn’t something we dealt with on a warranty, but it’s clearly in-warranty based on the manufacturer, we charge a reduced rate basically so that we don’t expose the client to the overall full labor rate.

Now one of the things that I would caution is that we’re pretty effective at this. And I think the important part of the reduced labor rate is you have to get the customer on a club agreement. One of the things that we do with our own installs is either we’re going to embed that in our customer experience — if you bought the system from us, you’re going to get the club agreement for a period of time – and any extended warranties that are passed, you’re going to have to stay in the club.

So in this situation, an external warranty where you didn’t install it, this would be a great opportunity for you to talk to the customer about maintenance. Probably that repair wouldn’t have happened – there’s a good likelihood that if we did regular maintenance on it, this particular crisis wouldn’t have happened – so join the club.

You’re not going to make a living doing reduced warranty labor rates: it’s no fun. So you want to also keep that as a part of your tracking system and your financial system.

So Drew, I’ll toss that over to you, but that’s how we handle it.

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