Imagine a situation: A homeowner purchases a new system, only to find, a year or two later, that the system is defective. With frustration, the homeowner calls their local contractor, and a technician comes out. Soon, the customer is hit with a costly repair they were not expecting so soon after purchasing a brand-new system.

But with an extended warranty, the customer is spared the second expense, and they stay happy.

“An extended warranty signals that a contractor is so confident with the work that they do that they’re going to make sure that nothing will go wrong with the system for 10 years,” said Konstantinos (Gus) Vassilopoulos, digital marketing manager at Trinity Warranty Solutions LLC.

The Many Benefits of Extended Warranties

An extended warranty, which often covers the cost of a system’s repair for five to 10 (or more) years, can improve relationships with customers, signal confidence on the part of the company, and lead to greater profit.

Jenna Ochoa, vice president of JB Warranties, said that many contractors bundle the price of the warranty in with the homeowner proposal. This can lead to profit if the contractor marks up the warranty, and it offers the customer the peace of mind in knowing that there will be no unexpected repair costs coming down the road. Plus, many warranties are packaged as an asset to the home, meaning than it transfers when new people move into the home, adding to the residence’s value.

“Offering warranties helps contractors set themselves apart,” said Ochoa. “There are a lot of homeowners that are seeking out that warranty when they purchase a system.”

Such a trend is likely to continue, too. Vassilopoulos pointed out that the market has conditioned people to expect warranties. Homeowners are accustomed to include warranties with their cell phones or televisions, so an HVAC system is a natural extension of that. When purchasing other products online, especially appliances and technology, e-commerce sites will often offer a warranty right beside the product being purchased.

In the case of a costly repair that hasn’t been covered by warranty, a contractor may opt to reduce the service bill in order to keep a customer satisfied — or at least less angry. This cuts into the bottom line, instead of charging the full price for that service and having it reimbursed — labor and equipment — to the company. And happier customers means more referrals and better online reviews.

Not only that, but warranties can help boost the valuation of a business, as explained by Leonard Billy, vice president, HVAC Division, AIG Warranty

“Customers that are self-insured are actually going to be looked upon as a liability in a business valuation,” said Billy. “Whereas with an extended warranty that’s underwritten properly by an insurance company, that customer is going to represent an asset on the right side of the balance sheet.”

Marketing and Selling Warranties

When selling warranties, one option is to wrap up the price into the initial estimate given to the homeowner, instead of offering the estimate and then recommending the warranty as an add-on. Customers can opt out once they see the warranty as a line item on the estimate, but factoring it into the initial price allows contractors to emphasize the benefits of the warranty, instead of portraying the warranty as even more money on top of an already expensive repair.

“A lot of independent surveys support the notion that consumers desire coverage when they are presented with it,” said Billy. “Contractors can close more sales simply by differentiating their proposals from the competition.”

“We’re seeing contractors package extended warranties with their home comfort systems,” said Vassilopoulos. “They won’t say, ‘We’re offering you an extended warranty with your system.’ Instead, they’ll say, ‘This is a guarantee we offer.’”

How to Choose a Warranty Partner

When searching for a warranty company to partner with, HVAC contractors should look for a warranty provider that has positive references and reviews and a responsive customer service team.

“I would look for a company that’s backed by an AM Best A-rated insurance company,” said Ochoa. “That way you know they’re reliable and the backing’s there.”

Vassilopoulos agreed, saying that it is absolutely critical that there is money sitting in an account for repairs, and that contractors can access it when needed.

Accessing the accounts needs to be easy, too. A warranty company that makes reimbursement too challenging may mean that a busy contractor does not have the time to go through the process to be reimbursed. This means that the warranty isn’t taken advantage of. Similarly, companies that have a reputation for trying to stall payments should also not be partnered with. Vassilopoulos recommended that contractors sit down with a potential warranty provider and know exactly how much money will be provided in reimbursement and what that process will look like.

Upon choosing a partner, contractors will decide the labor rate for their reimbursement, the duration of the warranties they will sell, and which components will be covered as well.

Choosing the right partner is critical, as some contractors (in HVAC and other trades) will offer extended warranties, only to find that the warranty provider goes out of business several years later, leaving the contractor to shoulder the warranty bill. Contractors would do well to understand the stability of the company they are planning to partner with, as well as their experience working with HVAC companies.