When Scott Siegal changed his roofing company’s warranty in 2006, most of his competitors were offering a two- to five-year guarantee on workmanship and passing through any manufacturer warranties. Siegal, who owns Maggio Roofing, in Takoma Park, Md., could pass through both a material and labor warranty because his company is manufacturer certified. But so are a lot of other roofing contractors in his market. Siegal was looking for something that would differentiate his company from all of the others that were installing what most homeowners think of as the commodity of all commodities: asphalt shingle roofing.
That differentiator turned out to be a lifetime warranty, which Siegal offers on all new roof systems that his company installs. The move didn’t happen overnight. One problem was figuring out how much to add to his price to cover the liability without pricing himself out of the market. The amount varies by roof type, but on average it pencils out to less than 10 percent.
There was still a problem, however, because Siegal sells several lines of roofing at different price points. “I was worried about it at first,” he says, “and my sales manager was concerned about it, too. Why would anybody buy the higher price roofs if everything carried a lifetime warranty?”
Siegal’s answer was in the way he built value into the sale. “Most contractors don’t offer a lifetime warranty because they’re worried about the liability,” Siegal says. “But most contractors are also going to fix problems after their warranty has expired, just to keep customers happy. So why not make it part of the sales process?”
First Things First
For Siegal, it all starts with a solid installation. That comes from continual research into the best available products for every type of roof his company sells.
To that he adds manufacturer and in-house training for all of his employees so that the work on-site is as flawless as it can be. And the final piece of the puzzle is a maintenance program. “We come back once or twice a year to inspect the final product to make sure there are no problems,” Siegal says. “If we find something, we fix it on the spot, before it becomes a major problem.” Siegal also points out that a lot of roof damage he repairs comes from “natural” causes such as wind, hail, and falling trees—most of which are covered by homeowner insurance.
There isn’t much fine print either. “Lifetime” applies not just to the original homeowner, but can be transferred once to a new owner. And if, years from now, the roof simply wears out, Maggio Roofing will put on a new one. That doesn’t worry Siegal. “We know that this roof is going to last 30 or 40 years, so statistically speaking, very few people are going to collect on the warranty,” he says. “My bet is that my warranty will outlast the homeowner.”
So far, it’s been a pretty safe bet: Maggio hasn’t had a single lifetime warranty claim in nine years. On top of that, the maintenance program generates a lot of new work. “We’re selling peace of mind,” Siegal says, “but we’ve also trained our reps to look for additional work during the inspection. In the beginning, we didn’t get much work from it, but now that we’re nine years into it, it probably generates 25 percent of our volume.”
Warranties for the Rest of Us
A lifetime warranty is less risky and more feasible when you’re dealing with just one component of the house, such as the roof. Based on input from our audience, most full-service remodelers offer the following:
Term: Labor and materials for between one and five years, or the manufacturer’s warranty, whichever is longer. Most companies have had the same warranty in place since they opened for business, which usually means they haven’t had many issues. But a warranty should be regularly reviewed to make adjustments for changing statutes as well as to add provisions to avoid recurring problems.
Exclusions: Products and materials provided by the homeowner are expressly excluded from most remodelers’ warranties. The most frequently named owner-supplied items are appliances, faucets, and light fixtures (see “Warranty Woes”).
Subcontractor warranty: Most remodelers expect subs to stand behind their work during the warranty period, though not everyone specifies this in their subcontractor agreement. If subs don’t cooperate, most remodelers will eat the cost—and look for a new sub. Regardless, remodelers almost never simply turn warranty work over to a sub. More likely, as GC, they will coordinate scheduling and access, and will monitor the sub’s work.
Scheduled maintenance: Not everyone schedules warranty inspections, but those who do plan a general inspection halfway through the warranty period. They look for major issues, such as structural settlement, loose fasteners on exterior decks, or a complete product failure. Minor repairs—adjustments to cabinet door and drawer hardware, or sticking doors, and especially any drywall, paint, and caulk repairs—are saved until the house has gone through a full seasonal cycle.
Cost: Companies report spending less than 1 percent of project value on warranty issues. How they account for that money varies, however. Some post it as a job cost, but the majority include it as overhead, which is the preferred method (see “Accounting for Warranty Work”).
Start/end date: Warranty start dates vary, from “substantial completion” to the day of final inspection to the date on the certificate of occupancy. As for end dates, none of the full-service remodelers we talked with expressly offers a lifetime warranty, but almost everyone said they fix problems long after the warranty expires, just as a matter of good customer service. Most pursue reimbursement from manufacturers or try to make a deal with their vendor. But if none of that works, they typically eat the cost to keep a reasonable client happy.
Thanks to the following for their help with this article: Bob Dubree, Creative Contracting; Paul Hamtil, Hamtil Construction; Andy Hannan and Mark Scott, Mark IV Builders; Steve Klitsch, Creative Concepts Remodeling; David Merrill, Merrill Contracting & Remodeling; Matt Reale, M.N. Reale Construction; and John Vogel, New Outlooks Construction.
For sample warranty language, see “How to Avoid Warranty Problems.”
It may seem logical to job cost warranty work just like any other project expense. Better, however, is to classify it as overhead for several reasons.
1] Any costs related to a job should be compared with the original estimate to identify slippage and help fine-tune the estimating process. Adding warranty costs to this muddies the waters. It is useful, however, to describe the nature of the warranty work in a memo.
2] Warranty work is often performed long after project completion, and may occur in a different financial period. Treating warranty costs as overhead avoids skewing your gross margin on current work.
3] Warranty work produces no revenue, so the cost for warranty work should be classified as overhead. Whether or not a particular customer benefits from your warranty policy, warranty cost should be part of your markup calculation.
4] As an overhead expense, warranty work can be included in your operating budget and monitored, and any significant fluctuations can be investigated. A proportional increase is reasonable (if your sales volume doubles, warranty costs may also double); a non-proportional increase, however, may indicate a reduction in quality control that needs to be reviewed.