What does that Warranty cost?

[Etchase]

Somewhere I remember reading a TTI financial disclosure a couple years ago that said their warranty cost was 4% of revenue. This was after they went to a 5 year warranty. Their revenue is based on wholesale prices and not what we pay. Power tools and batteries break. Today I was reading Snap On’s 10K, and in footnote 15 they disclose their warranty costs of about 0.3% of revenue. They don’t sell many power tools. Neither company discloses their variable cost of good sold, but with Snap On’s pricing it’s probably extremely low. Individual consumers value and utilize warranties differently, but they don’t seem to cost manufacturers much.

 

[zendriver]

Comparing percentages of revenue seems kind of meaningless imo since “revenue” can come from many different places, not just making tools.

 

[oldschoolcraft]

If I were doing a business analysis of this, I'd wonder how warranty cost breaks down into the following:

• Cost of the actual replacement product
• Cost of handling the customer service
  • Conversation with customer
  • Receiving the old tool
• Cost of delivering the replacement product

If a home user warranties a tool, Snap On has to respond to the phone call or email. It seems reasonable to assume that it would take 5 to 10 minutes to handle this process of communication and filing the data into the system, generating a return shipping email, etc. If we assume a customer service rep is making $15/hour then after FICA taxes, insurance, paid sick leave, etc, that easily jumps to $25/hour. To keep numbers round, let's assume they can handle 5 warranty claims per hour, that's $5 in customer service fees per warranty claim communication.

Now they have to pay for a return shipping label, and a sending the replacement, let's call that $15 round trip since they'll have business tier pricing with UPS.

Add on the 10 minutes when the tool arrives to inspect, process it, put new tool in box, ship out, let's call that another $5.

So you're looking at $25 to process a warranty for a home user. It might be a single socket that cost them $10 to make.

The point behind this discussion is that in the case of Tool Trucks, Snap On has essentially offloaded the entire $25 cost to the Tool Truck driver. The driver has to deal with everything and the replacement tool will be included in his next bulk order and adds almost nothing to the total shipping cost.

I'd want to know this because if the ratio of Tool Truck customers to Home Users shifts, then the warranty costs will increase.

The point of this is to say maybe Snap On's warranty costs are much higher than listed, but they are cost shifted to a different part of their balance sheet. In this case, if they sell the tools directly to the customer, they have much larger of a profit margin. If they sell through a tool truck driver, Snap On sells it to him for wholesale prices, and some of that profit goes to the tool truck owner.

So they trade off having a lower cost to warranty but also have lower profit per tool sold. Versus selling it themselves, they'd have higher profit per tool sold but warranty cost would be higher.

 

[john.k]

Id think compared to a car makers warranty and recall expenses ,a tool makers would be peanuts .........even 4% seems extravagant.

 

[Etchase]

TTI pretty much only makes tools. 10% of Snap one revenue is financial which doesn’t have a warranty, and isn’t included in the $ 4.7 billion. This portion of revenue is approximately 53% tools, 21% diagnostic, and 26% equipment, so warranty on tools can be at the extremes between 0 and 0.6%

 

[Wamsutta]

The shipping cost to send the replacement tool to your house might cost more than the cost of materials and manufacturing. Who knows.

 

[2ndGearRubber]

It makes sense to me a company making almost exclusively power tools and batteries which have a long warranty period would have a high warranty cost.

 

[dscheidt]

One of my statistics professors had a funny story about this. she worked for a lighting manufacturer. They made stadium lights, which had a warranty -- 'if more than x% of the lamps fail in Y hours of use, we relamp". One of the big wigs came to her and said "We have good reliabilty data for this, right? How much do we have to charge to make the warranty 2Y hours, with the same percentage cost of warranty?" She did the numbers, they started selling a premium line, the only difference was it was rather more money. (the expected life of the lamps was several times the warranty period, but they had a fairly high early failure rate, in bathtub curve of some sort.) It sold well enough they dropped the standard offering.

 

[rust in the eye]

If I were doing a business analysis of this, I'd wonder how warranty cost breaks down into the following:

• Cost of the actual replacement product
• Cost of handling the customer service
  • Conversation with customer
  • Receiving the old tool
• Cost of delivering the replacement product

If a home user warranties a tool, Snap On has to respond to the phone call or email. It seems reasonable to assume that it would take 5 to 10 minutes to handle this process of communication and filing the data into the system, generating a return shipping email, etc. If we assume a customer service rep is making $15/hour then after FICA taxes, insurance, paid sick leave, etc, that easily jumps to $25/hour. To keep numbers round, let's assume they can handle 5 warranty claims per hour, that's $5 in customer service fees per warranty claim communication.

Now they have to pay for a return shipping label, and a sending the replacement, let's call that $15 round trip since they'll have business tier pricing with UPS.

Add on the 10 minutes when the tool arrives to inspect, process it, put new tool in box, ship out, let's call that another $5.

So you're looking at $25 to process a warranty for a home user. It might be a single socket that cost them $10 to make.

The point behind this discussion is that in the case of Tool Trucks, Snap On has essentially offloaded the entire $25 cost to the Tool Truck driver. The driver has to deal with everything and the replacement tool will be included in his next bulk order and adds almost nothing to the total shipping cost.

I'd want to know this because if the ratio of Tool Truck customers to Home Users shifts, then the warranty costs will increase.

The point of this is to say maybe Snap On's warranty costs are much higher than listed, but they are cost shifted to a different part of their balance sheet. In this case, if they sell the tools directly to the customer, they have much larger of a profit margin. If they sell through a tool truck driver, Snap On sells it to him for wholesale prices, and some of that profit goes to the tool truck owner.

So they trade off having a lower cost to warranty but also have lower profit per tool sold. Versus selling it themselves, they'd have higher profit per tool sold but warranty cost would be higher.

I just got off the phone with Snap-On for a small warranty claim.
Phone call was maybe 5 minutes with a polite CS rep that is in the USA, Crystal Lake Illinois. I doubt this was a $15/hr. drone, more likely a salary position as they seem to have some autonomy. Either way that person probably handles hundreds of calls per day so the labor cost would be almost nil.
This is the second time I've dealt with them over the phone for warranty(local truck guy is an A hole), both times with a satisfactory and painless result. For this claim which was a single broken socket they didn't require it's return. My previous claim was a significant one and they did want the old tool. I believe I paid freight to them as this is preferrable to dealing with the aforementioned saleman.
There must still be a warranty claim process that somebody at SO must do for the dealer. Not much difference I can see.

 

[P0234]

It makes sense to me a company making almost exclusively power tools and batteries which have a long warranty period would have a high warranty cost.

Additionally they have a good selection of 2 and 4 stroke powered tools. When those break, the cost to have service centers repair them is probably very high. For example when Bubba forgets to drain his gas over winter. There is a reason they ship a lot of their stuff with Ethanol Shield.

 

[bobg03]

If I were a professional mechanic (I'm not) I would use the tool trucks for easy replacement and good zero% financing too. I can see the value for a working man who needs things to make money especially the warranty part.

That said I have some truck tools but typically paid cash from a driver who kept his truck at the race car shop where I hung out. He always gave good deals on Wednesdays if you had a couple of cold beers for him, before he drove his car home, he'd wanta see what we destroyed on the 3 cars we raced at 3 tracks every week. So he'd hang around for a few hours...lol. He couldn't park his truck in the waterfront community he lived in per the HOA.

 

[IndyGarage]

That warranty line is not at retail. It is at cost of goods sold.

My guess is Snap on's COGS is only about 10-20% of the retail price, so a $100 wrench probably costs about $10-20 to produce.

So they warranty that Item they only put $20 on the warranty line.

 

[isb cornbinder]

I owned s few Corvairs in the 1960s. The last one was a turbo Corsa. The rear wheel bearings never lasted more than a day. After many warranty repairs, I asked to see the bearings that came out of the car. The bearing surfaces looked blistered and burnt. I had been going to welding trade school. One of the important take-a-ways was the importance of grounding and never pass current through a bearing.
This blistering told me that a heavy amperage had passed through the bearings. Before I took possession of my car, the service manager and I took a detailed look at the car. I pointed out the ground straps had pulled apart and the ground was only through the driveline and onto the battery. The Turbo had enough torque to max-out the motor mounts and pull the ground cables apart. I paid for two proper ground cables, the dealer installed them and the bearings never failed again. A TSB (trade service bulletin) came out detailing this change. My name was not mentioned on the TSB.
The Corvair was a great idea with some good engineering, BUT some misinformation from a politician killed the car just as it was reaching the best it can be.
I think the last model year was a beautiful design.

 

[seber]

Great cars. I'd still be driving my Corsa convertible if my then girlfriend hadn't kept driving it after the fan belt failed.