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How To Sell Extended Warranties

Jonathan Hinshaw - Tuesday, November 05, 2019

Just read an article about warranties, it was written around the concept that longer warranties are not good for consumers (they get hammered with high labor charges to install them warranty parts), not good for dealers (they don’t get paid markup on parts), and maybe the manufacturer puts parts into a system that should be replaced.  Not good for anyone.  

I am not of that mind-set.  I think longer warranties are good for all of us.  For example, today the consumer gets protected from having to spend money on a variable speed motor on a 6-year-old furnace, it can and will be covered by most manufacturers.  I can recall clearly back in the 90’s when they first came out, and I sold several in the Phoenix market.  A few years later we had some that died, mostly due to bad transformers or other electrical problems.  Just imagine how excited the homeowner was when we told him the bill for the motor was $1200 or more.  The typical response was: am I getting a new furnace?  Nope, just the motor.  

The dealer gets a consumer that will, in all probability, call them back to fix the problem under the manufacturer’s warranty.  These products have proven technology in most cases, the manufacturer has little risk in a warranty that can span a decade or more.  But let me build a case for going further.  

Buy the extended warranty on that product.  Yes, you the dealer buy that warranty that matches the parts coverage on the products.  Please keep reading, I am going to share how to present this to the homeowner.  I realize the extended labor coverage can be expensive on a modulating system loaded with technology such as Wi-Fi controls, IAQ products, all the bells and whistles.  But that system will also have a significant investment for the homeowner.  You have choices, you can include the warranty on all systems above a certain efficiency or make it an option on every system.  Mandatory on your “Best” installation. 

I understand the dollars can get in the way.  We are not talking $78 here, maybe 10 times that.  You job is to show the benefits of that extended labor warranty.  First, it protects the consumer for a decade or more.  Use 10 years as an example.  120 months.  Have them think back 10 years, what have they seen in unforeseen expenses with their home in the last 10 years.  Not just HVAC, any costs that came up unexpectedly.  IF you have a homeowner who says they have not had any unexpected expenses, you are either in a really rare home or they are lying.  If that is the case, share a true-life story of what a replacement motor or circuit board costs, it can be large.  In most cases, the repairs will be several hundred dollars, maybe thousands.  Then show that homeowner that in the case of their new comfort system, if they just do a yearly maintenance, their cost is typically zero.  Nada.  Nothing. 

Here is one example using financing.  Take a mid-efficiency system, say a 15 seer with 95% furnace.  Total investment is $16,000 (rounded up, just an example).  Finance it for 7 years at  

9.99%, payment is $265.  Go to 16 seer with 2 stage variable speed furnace, investment is now $19,000 including a 10 year extended labor warranty (parts are already covered).  9.99%-10 year, payment is now $250.80/month.  For two stage cooling and heating and 10 years of parts and labor coverage.  List those benefits, and then show it is $15 less per month.  OK, I do realize that it is for an additional 3 years, but the cost per month is still lower.  Lots of ways to spin this, I used a typical finance package at a dealer cost of 6%, for 8% you could go to 6.99%, with a payment of $220/month for 10 years.  Raise the investment to $20,000 to include financing cost, payment goes to $232 for 10 years, still a bargain. 

Use an item we are all familiar with, TVs or Autos.  The extended 100,000 mile coverage on a new Denali will set you back as much as $3000.  That will take you from 36 months to 60 months or 100,000 miles according to an internet source!  May and I bought a new Tahoe a few years back, they wanted over $2000 for the 100,000 mile coverage.  Bear in mind you have to take that SUV into the dealer to get work done, he doesn’t come to you.  Bought a new TV for our home in Phoenix after our move last year.  Best Buy had the TVs on sale, around $350.  When I went to check out, they asked me which warranty I wanted, the 3 year or 5 year.  One was over $300, and I had to bring it back into the store to get repairs done.   I declined.

My point, our warranties are really inexpensive compared to what the consumer sees on a daily basis.  We are the ones who think they are too much.  When you think that for a few hundred dollars we will come back to that home for the next decade or more to fix whatever is not working correctly, and while there we can share some new stuff they may not have, or share some additional services they have not used our company for, it really makes a compelling case for offering those warranties every time.  I will put our systems up against any TV or even car in terms of technology, we have hi-tech in all our furnaces and condensing units.  So it is not something the average consumer will try to fix themselves, although that does happen.  When that occurs, we see smoked control boards, shorted out transformers and stats, it may be even worse.    

I would not break out the pricing for the extended warranty, just reply it is part of that system, comes with it.  The concept is that today, with the sophisticated systems and controls, you need a professional to be involved, and an extended warranty will eliminate one of the big hurdles keeping them from calling you, the price of the repairs.  No one puts money away for an HVAC or Furnace breakdown, not in the budget.  But including that protection on the system in the front end makes a lot of sense.  

Oh, how about doing this in-house, self-insuring.  Just a word of caution.  The person buying your company may not think that is such a good idea.  You have already been paid that money, but you have to cover that product for the next 10 years.  Buying the manufacturers warranty gives the new buyer the assurance that he will have his labor covered in the case of a repair.  

So offer the extended warranty on the next 10 jobs, see what the reaction is.  I know, your market is different, they don’t buy “those warranties” in your area.  What I have found is that the most common difference in a market is the accent, we are selling to human beings, they all buy the same way: emotionally!  So wrap the package together, sell the benefits, make it happen.  

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