Not all service agreements are worth your while
By Paul MacDonald, ServiceSource
Warranty service fulfillment is a losing proposition for many selling dealers, although it shouldn’t be.
Providing warranty service almost always comes down to the dealers’ desire to care for their customers and protect their brand. Products that fail under the manufacturer’s warranty are not the fault of the selling dealer; moreover, it’s the manufacturer’s legal obligation to fix the appliance during the initial warranty period. So why do it if it’s not profitable?
Negotiating a warranty service contract can be a complex and delicate process. It often involves various parties with different interests, goals and expectations. The goal is usually to reach a mutually beneficial agreement, but there are times when it is essential to say no, politely but assertively. Knowing when and how to do this can make a significant difference in the success of your business.
Remember, not providing warranty service when it’s a losing proposition will not end your business. Many successful dealers do not provide repair services.
Let’s explore several scenarios when saying no to a warranty service contract negotiation is OK.
Unrealistic Timelines. One common scenario that may necessitate a no is when the other party proposes an unrealistic timeline. Manufacturers measure the repair turnaround time (RTA) with warranty service agreements, but fail to acknowledge replacement part availability or regions affected by seasonal residency. Some offshore manufacturers ask you to warrant the entire product for 90 days after a repair. These are two scenarios where you might consider saying no or getting clarity on how your performance is measured.
Unfair Terms and Conditions. Sometimes you may encounter contract terms and conditions that seem unfair or biased toward the other party. Such terms can include clauses that favor the manufacturer, such as one-sided termination rights, restrictive confidentiality agreements or excessive breach penalties. In such cases, pushing back and negotiating for more balanced terms that protect your interests is crucial.
Inadequate Compensation. When the compensation offered in a warranty service contract doesn’t align with the value you’re providing, expressing your concern is essential. Warranty rates could involve pricing that doesn’t cover your costs or undervalues your products or services. It’s acceptable to say no to these terms and seek a more equitable arrangement that reflects the value you bring to the table. A warranty rate less than the cost of a truck roll should be a red flag and a critical negotiating point. If you insist on accepting a rate below your costs, consider moving that vendor to the back of the store and switching your customers to a more warranty-friendly brand — and make sure the manufacturer’s rep knows why.
Financial Risk. Entering a warranty service contract that poses a significant financial risk to your company is a situation where you should exercise caution. If the terms expose you to potential financial instability or losses, rejecting or negotiating more favorable terms that mitigate those risks is advisable. A manufacturer who takes too long or doesn’t pay only increases a company’s accounts receivables.
If you can’t negotiate a good deal, it’s not worth doing warranty service for that brand and it’s time to say no. Push those calls back onto the manufacturer and spend your time on the more profitable COD calls.
Next up: How to prepare for the negotiation.
Paul MacDonald, AVB’s senior ServiceSource lead, ran his own 38-tech service business and is a past president of the UASA. He currently operates The Expert Service Program, which helps servicers run their operations more efficiently and profitably. You can reach Paul at (647) 500-7785 or at Paul.m.Macdonald@brandsource.com.
