Blog Article

Warranty Work Pricing

When you think about your pricing, you’re probably focused on labor, materials, and overhead. But there’s one cost that often gets overlooked and quietly eats away at your profit: warranty work. Let’s break down what’s really happening and how to fix it.

Today we are going to talk about pricing for warranties. Why are you going to listen to me? Well, my name is Jenn Shaw and I am the founder of All Accounting LLC and we specialize in small and midsize companies helping them understand their numbers because we really feel when you know your numbers, you can own your future. And so we want to empower you with understanding all of the levers that you can pull to help guide you to a better profit margin and to really build a business that you are loving and thriving in. So let's talk about warranties.

Okay. So the costs that you don't see are actually hurting you. So the hidden costs that you have in warranties if you aren't prepared for them. So warranty work is you know basically you're going back for jobs in which you have guaranteed that you are providing a good service and most of the time you are not charging for that and it is just purely you replacing and redoing these things. So, it's important that this is mainly an expense to your business. It can include the callbacks, fixes, labor, materials, all of these different things. And most contractors really are forgetting to price this within their full pricing structure to their clients.

This is really making it so we're leaking profit money because all you are having is an expense and forgetting about creating that revenue on the top line to cushion when these do happen. Warranty work though is predictable and it is something that you can fix into your pricing to ensure that it is covered. Now, not every client you are going to have a call back, but in general, even big companies can see warranty issues coming between 3 and 10%.

And there are different ways that you can help minimize this with training your employees during the working, making sure that you are buying high-quality products, so you're taking your time doing the job, not too much time that it's costing you too much in labor, but that you're showing good quality work. But a lot of times, if it's not built into your specific pricing, where is it going to come from? It's going to just be a pure cost to you and at the bottom line that means you have more expenses than you do have revenue and you will be paying for these warranty issues. They are not random though and over time you can see that they are predictable.

So like I said if you don't include it you're basically paying for it yourself. But how do you know how to actually build it within your pricing? So if you don't have any historical data, that is the best way to go about it first. But if you don't have it, then the best thing is just to begin tracking it now. Take a chunk of time and decide that okay, this is our starting point. Or you can arbitrarily just say okay we think that our company is going to start out at buffering at 5% of our revenue and see where it goes from there and you can adjust over time but yeah tracking your warranty cost. So within QuickBooks Online, this may be a tag that you are going to associate into the expenses or perhaps you have a specific category and line item on your profit and loss that has any labor material or anything like that involved for just warranty items so that you could break down and see what that number is telling you. And over time, you want to adjust it. You don't want to keep it always at 5% because knowing what your warranty costs are will help guide you for better practices within your business as well in training employees, making sure that they are doing a really great job with their workmanship and showing that you can cover what you have created.

So yeah, so you can do a couple ways in order to buffer this in. You can basically put that extra 5% in or whatever price you want into just the overall pricing into any of your products or you can build it into your labor rate. And so if you put that 5% on what you normally charge and just add in that extra fee. So, not 5%, but let's say you charge $125 an hour, normally now you're going to begin charging $135 to kind of buffer a little bit of having to have those gobacks. And then again, a great way to also do it is to reduce costs is just better quality control. Seeing what problems constantly come up. Is it specific items that you're doing work on or is it just overall your work? And seeing if it is a specific item, is it the employees that are installing it or is it perhaps the product that you're using? And just really understanding what that warranty issue is telling you.

The bottom line though is you can't afford to ignore these warranty costs. Basically, if you aren't buffering them in, you as the business owner are paying for them yourself. And that isn't what you want to do. In order to build a strong company, you want to make sure that all of these costs that are predictable and you can track that you are putting that into your business model, into your pricing model, and ensuring that you have good margins in order to protect your work.

All right, guys. That was it for today. I hope that you learned some key things about warranties. Perhaps you were wondering what to do with it yourself. So, I hope you can take this back into your business and maybe guide and review what you have going on in your books. If you do want someone to talk to about them, happy to do that. Our information is helpallacountinglc.com and we have our phone number. But that's it for this week. I do hope to see you next week and have a great weekend.

The Hidden Cost of Warranties (And How to Stop Them From Eating Your Profit)

What Is Warranty Work, Really?

Warranty work is any job you go back to fix or redo after the original work is completed. You’ve guaranteed your service, so when something needs attention, you return and make it right.

The problem? Most of the time, you’re not charging for it.

That means every callback, repair, or replacement becomes a direct expense to your business. Labor, materials, time - it all adds up, and it’s coming straight out of your bottom line.

The Profit Leak Most Contractors Miss

If warranty work isn’t built into your pricing, you’re essentially paying for it yourself.

This is one of the most common ways contractors lose money without realizing it. You’ve got the revenue from the original job, but when warranty work pops up, there’s no cushion to absorb the cost.

The result: shrinking margins and profits that don’t reflect the effort you’re putting in. If you are not tracking costs by project, this leak is nearly invisible, which is one reason job costing matters so much.

The Good News: Warranty Costs Are Predictable

Here’s the key insight most business owners miss: warranty work is not random.

Even large, well-run companies typically see warranty-related costs fall somewhere between 3% and 10% of revenue.

That means you can plan for it, price for it, and control it.

How to Start Accounting for Warranty Costs

If you already have historical data, use it. Look at past warranty-related expenses and calculate what percentage of your revenue they represent. Viewing costs as a percentage of revenue is exactly what common size reporting is built for.

If you don’t have that data yet, start simple:

Choose a starting point (5% is a common baseline)
Begin tracking all warranty-related expenses
Adjust over time as you gather real numbers

The most important step is to start tracking now.

How to Track Warranty Work

You need visibility before you can make smart decisions.

Inside your accounting system (like QuickBooks Online), you can:

Create a specific category for warranty expenses
Use tags to label warranty-related transactions
Track labor, materials, and callbacks tied to warranty work

This only works if your books are set up for it. See why your bookkeeping setup matters.

Over time, this data will show you patterns and help you make better decisions about pricing, training, and operations.

How to Build Warranty Costs Into Your Pricing

Once you understand your numbers, you have a few options:

1. Increase overall pricing
Add a small percentage (like 5%) across your services to cover expected warranty costs.

2. Adjust your hourly rate
For example, if you typically charge $125/hour, you might increase it to $135/hour to create a buffer.

3. Blend it into your cost structure
Incorporate warranty coverage into how you calculate your margins on every job.

The goal is simple: make sure warranty work is funded by your pricing, not your profit.

How to Reduce Warranty Costs

Pricing helps you cover the cost. But reducing warranty work altogether is even better.

Focus on:

Training your team for consistent quality
Using higher-quality materials
Identifying repeat issues or problem areas
Evaluating whether problems come from labor, products, or processes

Warranty work is feedback. Use it to improve your business.

The Bottom Line

You can’t afford to ignore warranty costs.

They are predictable. They are trackable. And if they’re not built into your pricing, they will quietly drain your profits.

A strong business doesn’t just deliver quality work. It also protects its margins by planning for the real costs of doing business.

Want help protecting your margins?

Pricing for the real cost of doing business is exactly the kind of work we do in our Virtual CFO service. Reach out to All Accounting and we will look at your job costs and margins with you.