Budgeting for warranty service

In preparing your budgets or cost anlysis for providing services, is as an essential to calculate the cost of warranty service. This can come in the form of warranty service due to internal causes (not completing work projected, not performing the job properly, etc) or external causes (a problem with newly installed equipment). These costs exist and need to be calculated as part of your overall overhead. For example, say you sell and install a brand new piece of equipment that you sold to your client. So your capturing both your margin on the hardware, plus the labor of installation – perhaps even advanced consulting/sales services. Now, what happens when the product you receive from the distributor comes in and is broken, or isn’t really the correct item (not compatible with application) — should your client be expected to pay the labor and costs associated with the inital install and then again the reinstallation? Likely not.

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