The missing $40k that’s really $80k gone

The invisible costs of warranty work

Almost every trades business deals with callbacks and warranty work. The trouble is that most owners never track what it costs them separately, so it quietly disappears into the books and seems to just evaporate. But once you can see these costs clearly, they turn into something you can actually manage.

A good rule of thumb for warranty work is to keep this to 2% of total work. However, many companies actually have callbacks at 5% and 10%. This can be controlled but only if you track it properly.

Let’s take a theoretical company and see how the math shakes out. For a $2 million HVAC shop who does roughly 2,000 service jobs per year, a 5% callback rate means they are doing 100 callbacks. Estimating the costs of tech labor, truck and fuel, dispatch and admin time and warranty parts, say this is $400 each time. 100 callbacks at $400 = $40,000 a year, and most of it never shows up as a line you’d notice.

Maybe that doesn’t look like a huge annual expense to keep customers happy. But the biggest drain is in the opportunity cost. If your techs were doing paid work instead, you lose the profits that could have been coming in that would cover the expense. That $40,000 expense turns into $80,000 in lost profits.

You probably aren’t going to completely eliminate callbacks entirely. But if you know your rate, you can see if callbacks exceed the 2% target rate. If the 5% per year drops to 2%, that’s 40 callbacks instead of 100, $16,000 in expenses instead of $40,000. This isn’t as difficult as you might think.

First you need to have your books structured to track this properly. Set up 3 accounts in your chart of accounts for Warranty Labor, Warranty Materials, and Warranty Travel. Also set up Warranty Work in your Products and Services if you are using QuickBooks Online. Staff then need to be trained to code expenses through these accounts.

Once callbacks are tracked, you can go back to evaluate the rate, and to see if there is a pattern as to why they are happening. Is it a training gap, parts-quality gap, rushing, or a crew issue? This is where you step in to remedy it. You can also start to budget for the actual expenses so that cash flow and job estimates don’t come up short later.

Plenty of sharp owners tell me they don’t need to track this so closely because they have a feel for their numbers. I understand the instinct. You know your business better than anyone walking through the door. But callbacks are the one spot where that feel almost always runs low, and not because your judgment is off. It’s because half the cost was never sitting anywhere you could see it. When those numbers are finally in front of you, you stop guessing and start working from something real. That is a much stronger place to make decisions from.

If you would like help tracking your callbacks, set up a discovery call to see if my services are a good fit for your business.