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Connected Customer Experience

Benefits of Establishing an Extended Warranty Program

Author Bill Pollock on Dec-6-2019

Dec_6_2019_BlogThe results from Strategies For Growth‘s (SFG‘s) 2019 Warranty Chain Management (WCM) Tracking Survey Update reveal that nearly two-thirds (63%) of respondent organizations currently offer an extended warranty agreement or service contract to their respective customers. In fact, this percent would actually increase to nearly three-quarters (i.e., ±73%) when reallocating the “don’t know/unsure” responses into the “yes/no” categories (Figure 1).

Further, while ± one-quarter report that they do not currently offer extended warranties of any type, the remaining respondents estimate that between 9.0% (median) and 16.7% (mean) of their total annual services revenues come from the sale of extended warranties.

Overall, 38% of respondents report that the percent of total revenues coming from the sale of extended warranties have increased over the previous 12 months, with 9% saying the increase has been by greater than 25%. To put things in perspective, while half of respondents (50%) report that this percent has remained unchanged during the period, only one-in-eight (12%) report a modest decrease of less than 25%, leading to an “increased-over-decreased” ratio of more than 2:1.

As such, the survey data strongly suggest that warranty management organizations that currently have a fairly robust extended warranty agreement portfolio are more likely to broaden their existing programs over time in order to generate higher levels of annual services revenues. Further, past SFG‘ survey research has shown that warranty organizations that have recognized the benefits of utilizing formal (i.e., automated) contract attachment and contract renewal programs have already begun to see steady increases in their annual services revenue streams.

Overall, the 2019 survey results reveal that, presently, roughly half (50%) of respondent organizations generate up to 20% of their total services revenues from the sale of extended warranties, with the mean average coming in at nearly 17%. Further, over the previous 12 months, more than a third (38%) of respondent organizations have reported increases of up to 25% (or more in some cases) in extended warranty sales, while only 12% reported decreases (typically, of less than 25%) in their respective sales efforts – a ratio of more than 3:1 reporting increases-over-decreases in extended warranty revenues over the past 12 months.

The survey results also reflect that most warranty organizations (85%) currently manage at least some portion of their extended warranty portfolio in-house (with 78% managing most of their entire warranty portfolio in-house). As such, it becomes incumbent to ensure that they have the most effective tools and resources available to maximize the impact that sales of extended warranties can bring to the bottom line.

As a result, metrics such as warranty accrual and warranty renewal rates have become paramount in their respective efforts to maximize projected revenue streams and build a stronger customer account portfolio over time. However, for the many organizations that do not currently have these warranty management tools in place, the prospects of their ability to stimulate improved revenue streams over time begin to drastically diminish.

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Topics: Service Contracts Management solution, EW & SC Innovations Conference, Extended Warranty Software, Nashville, warranty week

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