Imagine this scenario: You’re servicing a product your company manufactures, but no one has noticed that a design flaw is causing excessive warranty costs.

Or, the procurement team negotiated a multimillion-dollar equipment purchase that includes 2 percent to cover warranty work, but no one figured the actual warranty expense would be 3 or more percent.

Or, your service technician arrives onsite to fix the customer’s problem, but he’s unsure which components are covered under warranty — and which ones are not — so he does the work for free.

Each of these scenarios are examples of warranty leakage, a condition that can slash a company’s profits if field service leaders don’t plug the leak.

What is Warranty Leakage?

Measured as a percentage of total annual warranty costs, warranty leakage is the money a company loses while providing services that are assumed to be covered under warranty but actually fall outside the entitlement program’s scope.

What Causes Warranty Leakage?


Patrice Eberline

The root cause is a lack of visibility into warranty coverage and costs.

“Most organizations have no idea what warranty is costing them because they don’t have visibility into that data,” says Patrice Eberline, vice president of global customer transformation at ServiceMax. “Plus, warranties are becoming more complex, so it can be difficult for service technicians to decipher what is, and what is not, covered under warranty — unless they have precise, up-to-date information in the field.”

What’s the Impact of Warranty Leakage?

Consider the difference between top-performing organizations compared with those that suffer from high warranty leakage rates. If an annual warranty cost is $30 million, a sky-high warranty leakage rate of 40 percent costs a staggering $12 million per year, compared to $4.2 million for organizations with a manageable 14 percent rate. That’s a gap of nearly 8 million dollars. Per year. It’s hard to compete with top-performing organizations (and win), if you’re wasting two or three times as much money.

How Can You Stop Warranty Leakage?

The key is to deploy technology that makes warranty information easily accessible to all appropriate stakeholders, when and where they need it.

This way, when a customer requests a service call, the dispatcher will be able to instantly access warranty data and inform the customer upfront about what he or she qualifies for, before the technician arrives. And while onsite, a mobile-equipped technician can use his device to review the customer’s entitlement information and accurately determine what to bill the customer for and what should be covered under warranty.

Also, if you’re tracking warranty expenses on a manufacturer’s product and notice it’s costing more than what was originally negotiated, access to data is necessary to renegotiate a better arrangement with the OEM.

And if you service your own products, take hard data to the manufacturing department to show where repair costs are out of line with original projections.

“It might be a simple design fix that could lower the number of defects or cut repair time from, say, two hours down to 15 minutes, substantially reducing overall warranty expense,” Eberline says.

The Bottom Line

Before you can stop a leak, you must first identify where it’s coming from. That process used to be a chore, if not impossible, but technologies with strong contracts capabilities and visibility allow service leaders to identify the leak’s source — and send entitlement information to the right people, whether they use an iPad in the field or a PC in the corner office. That way you can preserve profits and keep pace with the top-performing competition.

ABOUT Sean Lyden

Avatar photoSean is CEO of Lyden Communications LLC, a content strategy and editorial consulting firm, and also serves as editor for Utility Fleet Professional magazine. A nationally recognized feature writer on sales, marketing, technology and transportation topics, Sean is also a contributing author to "The Ultimate Small Business Marketing Guide” and “The Great Big Book of Business Lists,” both books published by Entrepreneur Press.