Warranty Changes: Contractors Must Adapt To Succeed

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As much as you might wish manufacturers would stick to standard warranties, that’s not the current reality. Manufacturers are dealing with the same challenges as the rest of the industry: rising supplier costs, technology that seems to change almost daily and the resulting difficulties with finding appropriately trained labor, shifting consumer behavior due to the internet… the list goes on. The bottom line is that manufacturers need to make a profit. So, as long as customers react positively when manufacturers give five, 10, 12-year extended warranties, the strategy can be said to be working. For somebody!

How can ‘somebody’ include your business? According to the company leaders interviewed for this article, the key to controlling your piece of the current industry climate is to focus on thinking big picture, while being conscious of every detail under your control. As Ray Isaac, president of Isaac Heating & Air Conditioning in Rochester, NY, says, “Whatever we deal with, all our other competitors have to deal with as well. I see extended warranties as an opportunity to build a better mouse trap.” Proactive, positive, and strategic.

What does this attitude translate to in your day-to-day business?

Pricing

The contributors to this article outlined best practices for both limiting cash out and bringing cash in, starting with the importance of realistic pricing. Too many contractors underbid to get the job. This kind of ‘small picture’ pricing doesn’t fully take into account the realities of current-day costs, including those associated with managing with and around longer manufacturer warranties. For instance, you may want to look at buying 3rd party insurance to cover labor costs you, for whatever reason, provide customers because of extended manufacturers warranties. This is a cost you then want to build into your overhead for all bids. Properly valuing your time and effort means you can afford such risk management costs- to protect the cash you bring in.

Service Agreements

Looking carefully at warranty terms helps you identify opportunities for diversifying your services. Using the car industry as a point of comparison for HVAC may be overworked, but it’s still useful: don’t hand over the keys and walk away. Build your extended service offerings by ticking all the boxes the limitations of the warranty puts at your disposal, from improper installs to lack of maintenance.

For example: the product may be under warranty, but you can still contract with the customer for regular cleaning and ensuring it’s working properly, so that the customer gets all they paid for. Tim Cropp, president, CroppMetcalfe Services in Fairfax, VA, points out that these sorts of servicing can happen at any time of year. Aside from the advantage of gaining income generally, this flexibility also helps keep your people working (and their family’s pay checks coming) even

when it’s 70 degrees and weather related emergencies are few and far between. Similar services are energy audits or duct sealing and cleaning. Moreover, even if the biggest ticket item is under warranty, you can still educate your customer about useful products like programmable thermostats so equipment isn’t running 24/7, humidifiers, filtering systems, UV lights on the coils…. All of this supports real needs, often in ways that also ups the likelihood of manufacturers agreeing to reimbursement for anything that is covered under warranty.

Having a suite of services that is varied, comprehensive, flexible and customer-centered has another benefit for your bottom line. If you offer priority response when the weather prompts an overload of service calls, can assure the new owner of a $10,000 investment that they will keep the energy efficiency gains they paid for, and be an advocate when anything under warranty does fail, it is fairly safe to assume that you will benefit when the next major investment in HVAC comes due. So, take a very hard look at warranty details. Repeat customers are the primary key to profitability—according to research cited in the Harvard Business Review (https://hbr.org/2014/10/the-value-of-keeping-the-right-customers), finding a new customer is 5-25 times more expensive than retaining an existing one. And increasing customer retention rates by 5% increases profits by 25% to 95%.

Tracking and Record Keeping

Manufacturers have been working with warranties a long time. They’ve gotten good at protecting themselves. So must you. Dave Boelcke, president of Boelcke Heating and Air Conditioning in Stevensville, MI, calls the warranty claims process ‘a logistical nightmare’ that can take two or more months to make the circuit from wholesaler to manufacturer and back to you. As things are more likely than not to go wrong during this longwinded process, he recommends maintaining a detail-oriented company culture. This means: ongoing communication, meticulous internal tracking, double-checking everything a customer says about dates and original ownership, and being careful to submit parts for reimbursement that are likely to be accepted. His goal: making sure the highest percentage of claims are honored, and that everyone is compensated who is supposed to be.

Employee Education

Of course, none of the above suggestions have any chance of success without a top-notch crew. A well-educated employee has the hard technical skills to know what to look for and how to evaluate their own ability in the situation. They know when, and how, to walk away from a job that is likely to cost your company money and/or a satisfied customer. This means training in the ‘soft’ skills that equal success in navigating customer relationships, including what not to promise before all the facts (accurate date of install, or original owner) are in. Service technicians can make or break your business because they are the front line for consumer education. People like 10-year warranties because of the perceived cost-saving. Having a person on the ground who can tell the truth about what else will need to be paid for in a way that a confused and possibly annoyed customer can hear is a great asset. And again—the manufacturer’s extended, but limited! warranty can help rather hinder in this scenario too, serving as the foundation for a convincing explanation of exactly why a service agreement with

your company is worth far more than just peace of mind for when the AC goes out the second week of the heat wave.

The Bottom Line

For your company to be profitable, you need to build a company culture based on proactive thinking. Record keeping and tracking need to be a top priority. Know your limits, including what equipment in which circumstances you don’t want your service techs to take on. Educate yourself and your employees so that everyone is on the same, very strategic page, about navigating between the manufacturer, wholesaler and customer when it comes to replacements and warranties. There are ways to turn extended warranties to your advantage–take them!

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Posted In: ACCA Now, Money