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5 Must-Know Warranty Metrics - March 31, 2017

As a warranty manager, you already know the importance of measuring things like number of claims and the direct costs associated with those claims. In reality, there are many other critical metrics that can and should be used to better optimize the warranty process. That said, here are five key factors that can help improve product quality and drive performance.

Cost Per Unit (CPU) – This metric is used to measure the average cost incurred by your business during the warranty coverage period. CPU is calculated by dividing the totally warranty cost by the number of units covered. By calculating warranty CPU, you can develop a more accurate budget and also calculate projected pricing for products and extended warranties.

Warranty as Percentage of Sales – This formula, which takes the total annual cost of warranties and divides it by the total annual sales, will help you determine just how much of a hit your business is taking from the warranties you are offering. This percentage may vary based on industry, but should typically fall within the range of 0.5% and 5%.

Supplier Recovery Percentage – Figuring out what portion of your warranties can be recovered from suppliers is essential to managing both warranty costs as well as monitoring supplier quality. By taking the supplier recovery number and dividing it by the total warranty cost, you can better track supplier performance. This information can also aid in the negotiation of parts pricing, warranty terms and other agreed-upon conditions with suppliers.

Contribution Rate – Measuring the warranty contribution rate can help to quantify the costs associated with each area of focus, including various product categories as well as different models, parts, regions, dealers and even labor costs. You can leverage this information to create charts and reports that will help identify and prioritize areas of potential improvement. The contribution rate can be calculated by dividing the warranty costs for a specific area by the total warranty cost.

Frequency of Claims – While most metrics associated with warranties are based on amounts, this one measures the actual number of claims and failures. By tracking this information, warranty managers can identify specific areas of concern. Larger organizations with a significant number of products may use a slight variation of this metric, such as repairs per thousand or million. Pinpointing the frequency of failures and measuring the time between those failures can provide valuable insight as to where improvements can and should be made. To capture this data, simply divide the number of claims by the number of units.

Offering warranties is par for the course in many industries, but without ongoing performance tracking, doing so could be unnecessarily hurting your company’s bottom line. Tracking how those warranties are impacting your company’s overall profitability is absolutely critical. Over time, leveraging the above metrics can help you continuously identify areas where performance can be optimized, costs can be minimized and relationships with suppliers can be improved.

Could you use assistance with this or any other area of the warranty management process? We can help you optimize the claims process from start to finish. Why go it alone when you don’t have to? Request a demo today to get started!

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