Last month I explained how offering two carpet protectors,
one with a warranty and one without, was the secret to selling protector on 80
percent of your jobs-guaranteed. Now I’ll explain how the warranty program
with, this is a self-funded warranty. There are some programs currently
available where protector manufacturers sell you a warranty and you can
certainly incorporate them if you want to. But today, we’ll be talking about a
warranty that you provide your customers yourself.
remember, how the selling system works is that, when it comes time to ask your
customer if she would like protector, instead of asking whether or not she
wants protector, you offer two protectors. The first one is a high-quality
protector, and the second is another high-quality protector that you offer with
a 1-year warranty (and for which you charge $0.05 more per square foot).
the warranty works is, if the customer has a stain she cannot remove herself,
she can call you and you will come out and attempt to remove it at no charge.
If you can’t remove it, you’ll refund them the cost of all the protector they
had you apply on the job.
critical element to this program is that you charge $0.05 per square foot more
for the protector with the warranty than without. So, on a 500-square-foot job,
the protector with the warranty would cost $100, while the protector without
the warranty would run $75. We’ll use low numbers to be as realistic as
possible; the cleaner is charging $0.20 per square foot for the protector with
the warranty and $0.15 for protector without.
always offer the protector with the warranty first and explain the whole
program. Then, and only then, offer the lower-priced, no-warranty protector.)
carpet cleaner does 15 jobs per week with an average of 500 square feet per
job. We’ll assume that he maintains this pace for 48 weeks annually, for a
total of 720 jobs a year.
our cleaner really wants to succeed, he uses the two-protector system and
offers it to every customer regardless of what he thinks the customer wants.
And as promised, he sells protector on 80 percent of his jobs. So out of the
360,000 square feet of carpet he’s cleaning, he’s putting protector down on
288,000 square feet.
all his customers that chose protector went with the warranty. In the real
world this won’t be the case, but you’ll be amazed to see that most customers
that chose protector will chose the one with the warranty for the small
difference in cost. And it doesn’t make a difference in terms of the numbers.
In fact, this example is something of a worst-case scenario in terms of
evaluating the cost of the warranty program .
cleaner provides protector with a warranty, he’s charging an extra nickel per
square foot, right? This means that he’s generating an extra $14,400 in income
(288,000 X $0.05). This money needs to be put into a separate bank account and
entered into his books as reserve funds. After all, you are going to perform
some warranty service calls, and this money is not yet taxable income when it
is held in reserve.
major manufacturers and distributor organizations have done some extensive
research on the subject of warranty callbacks and they all conclude that you
will get callbacks on about 5 percent of the jobs on which you sold protector
with a warranty. This means that our cleaner will have to go back out on 29
jobs. (288,000 total square feet protected, divided by an average job of 500
square feet, comes to 576 jobs. Five percent of 576 is 29.)
cleaner doesn’t want to not get anything for those spotting calls. So he pays
himself $60 per call out of the reserve fund. This means that he earns $1,740
in warranty call fees from the reserve fund. This still leaves $12,600 in
the bad news. Let’s say our intrepid cleaner can’t remove any of the stains he
gets called back out on. The warranty says he has to refund all the money he
charged for protector on those jobs. That means that he’s going to refund
$2,900, which is 29 jobs X 500 square feet X $0.20 per square foot.
Even in this worst-case scenario, our cleaner still has $9,760 in his reserve
fund! And we’ve only been talking about the extra nickel per square foot he
charged for the warranty! He still has the other $0.15! In this example that
represents $43,200 in additional income (288,000 X $0.15)!
to subtract the cost of the protector, which costs $0.03 per square foot for
premium protector, for a total materials cost of $8,640. The labor costs are
practically nothing because you’re already in the house.
a pure, bottom-line additional profit of $34,560. Plus, add in the $9,760 still
in the reserve fund and you have an increased profit of $44,320 from one truck.
If you have multiple trucks, well, you do the math.
not a CPA, but I suggest that you talk to yours about how to handle the
leftover money in the reserve fund at the end of the year. You may find out
that this nice little nest egg can be put into your retirement fund
Now think about doing this year after year in order to provide
for the kind of retirement you’ve always dreamed of! If you
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