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The ladder / Level 2 · Dealer/ Business math

Warranty claims and workshop revenue

Claim rates and the unreimbursed cost of warranty; revenue per bay and per job, bay utilisation, workshop break-even and adding a bay.

How numbers are rounded on these pages. Calculations are done at full precision and rounded only at the end, half up. Rupee amounts are rounded to the nearest rupee unless shown with paise, in which case to the nearest paisa. Percentages are shown to two decimal places, days to one decimal place, and payback periods in years to two decimal places. Interest for a number of days uses a 365-day year (simple interest). Break-even job counts and units needed to cover a cost are rounded up to the next whole number. All examples and quiz questions are Hypothetical: they show the method, not real prices or rates.

Warranty and claims cost

When a product fails under warranty, the dealer usually inspects it, replaces it from his own stock, files a claim with the brand and waits for approval and a credit note. Not every cost comes back: handling time, claims the brand rejects, and the interest on stock given out before the credit arrives.

To see what warranty really costs, work out the claim rate and the unreimbursed cost per claim, then spread it over every unit sold.

The standard formulas

Claim rate % = Number of claimsUnits sold × 100
Expected unreimbursed cost per claim = Handling cost + (Rejection rate × Value of a rejected claim)
Spread over salesWarranty cost per unit sold = Claim rate × Unreimbursed cost per claim
Funding cost of pending claims = Value of replacements × Rate × Days until credit365

Terms used

Warranty claim
A request to the brand to replace or repair a product that failed within the warranty period, and to reimburse the dealer.
Claim rate
Claims as a percentage of units sold.
Rejection rate
Share of claims the brand refuses, for example for misuse or missing documents.
Unreimbursed cost
The part of a claim's cost the dealer bears himself.

Worked examples

HypotheticalBasicClaim rate on batteries

A battery dealer sold 2,000 batteries in a year and handled 60 warranty claims.

  • Claim rate = 60 ÷ 2,000 × 100 = 3.00%

HypotheticalIntermediateWhat each claim really costs

Each claim takes ₹150 of staff time and transport that the brand does not pay. The brand rejects 10% of claims, and a rejected claim costs the dealer the ₹3,000 battery he gave out. Each battery earns a margin of ₹400.

  • Expected unreimbursed cost per claim = ₹150 + 10% × ₹3,000 = ₹450
  • Per battery sold = 3.00% × ₹450 = ₹13.50, which is 3.38% of the ₹400 margin

HypotheticalAdvancedAdding the cost of waiting for credit

For all 60 claims the dealer replaces a ₹3,000 battery from stock at once. The brand's credit arrives after 75 days; his money costs 12% a year.

  • Funding cost = ₹1,80,000 × 12% × 75 ÷ 365 = ₹4,438.36
  • Year's warranty cost = handling ₹9,000 + rejections ₹18,000 + funding ₹4,438.36 = ₹31,438.36
  • Per battery sold = ₹31,438.36 ÷ 2,000 = ₹15.72

Workshop revenue per bay and per job

For many dealers, the workshop is the part of the business the brand cannot take away. Measure it in a few simple numbers: revenue per job, jobs per bay per day, how much of the available bay time is actually used (bay utilisation), and the contribution each job leaves after parts and consumables.

Technicians on fixed salaries are a fixed cost of the workshop; the break-even number of jobs is fixed costs divided by contribution per job, just as in the trader break-even page.

The standard formulas

Revenue per job = Service revenueNumber of jobs
Monthly revenue = Bays × Working days × Jobs per bay per day × Revenue per job
Bay utilisation % = Bay hours usedBay hours available × 100
Contribution and break-evenContribution per job = Revenue per job − Parts cost − Consumables (− any per-job pay)Break-even jobs = Workshop fixed costsContribution per job

Terms used

Bay
A service position (ramp or lift) where one vehicle or product is worked on.
Bay utilisation
Share of available bay hours actually used for paid work.
Revenue per job
Average labour plus parts billed per job card.
Contribution per job
Revenue per job minus the costs that come with that job.

Worked examples

HypotheticalBasicMonthly workshop revenue

A two-wheeler workshop has 4 bays, works 26 days a month, does 5 jobs per bay per day, and averages ₹800 per job.

  • Monthly revenue = 4 × 26 × 5 × ₹800 = ₹4,16,000

HypotheticalIntermediateContribution per job and break-even

An average job bills ₹700 labour and ₹500 parts; the parts cost ₹380 and consumables ₹50. Fixed costs: three technicians at ₹18,000 a month, rent share ₹30,000, power ₹10,000.

  • Contribution per job = ₹700 + ₹500 − ₹380 − ₹50 = ₹770
  • Fixed costs = ₹94,000 a month; break-even = ₹94,000 ÷ ₹770 = 122.08, so 123 jobs a month

HypotheticalAdvancedUtilisation, and whether to add a bay

4 bays are open 9 hours a day for 26 days: 936 bay hours. The workshop did 450 jobs averaging 1.5 hours.

  • Hours used = 450 × 1.5 = 675; utilisation = 675 ÷ 936 = 72.12%
  • A 5th bay would add ₹25,000 a month of fixed costs. If it brings 80 extra jobs at ₹770 contribution: ₹61,600 − ₹25,000 = ₹36,600 a month extra profit.

With bays only about 72% used, first check whether the extra jobs could fit into the existing bays.

Quiz: warranty claims and workshop revenue

Pick an answer to see at once whether it is right, with a short explanation. Each question takes one try; your score appears at the end. No answers are sent anywhere. (Without JavaScript, open “Show answer” under each question.)

  1. Warranty claims · BasicYou sold 1,500 units and handled 45 warranty claims. What is the claim rate?
    Show answer

    Answer: (a) 3.00%

    45 ÷ 1,500 × 100 = 3.00%.

    Why the other options are wrong:

    • (b) That forgets to multiply by 100.
    • (c) That divides the wrong way round.
    • (d) Not 45 ÷ 1,500.
  2. Warranty claims · BasicThe claim rate is 2% and each claim costs you ₹500 that the brand does not repay. What is the warranty cost per unit sold?
    Show answer

    Answer: (c) ₹10

    2% × ₹500 = ₹10 per unit sold.

    Why the other options are wrong:

    • (a) That multiplies by 2 instead of 2%.
    • (b) That uses 20%.
    • (d) That ignores the claim rate; most units never come back.
  3. Warranty claims · IntermediateHandling costs you ₹200 per claim. The brand rejects 15% of claims, and a rejected claim costs you ₹2,000. What is the expected unreimbursed cost per claim?
    Show answer

    Answer: (d) ₹500

    ₹200 + 15% × ₹2,000 = ₹200 + ₹300 = ₹500.

    Why the other options are wrong:

    • (a) That assumes every claim is rejected.
    • (b) That ignores rejected claims.
    • (c) That is only the rejection part.
  4. Warranty claims · IntermediateYou replace 80 products worth ₹2,500 each from stock; the brand's credit arrives after 60 days. Your money costs 12% a year (365-day year). What is the funding cost?
    Show answer

    Answer: (a) ₹3,945.21

    ₹2,00,000 × 12% × 60 ÷ 365 = ₹3,945.21.

    Why the other options are wrong:

    • (b) That is a full year.
    • (c) That uses a 360-day year.
    • (d) A decimal slip.
  5. Warranty claims · AdvancedWarranty costs you ₹12 per unit sold and your margin per unit is ₹300. What share of your margin goes on warranty?
    Show answer

    Answer: (c) 4.00%

    ₹12 ÷ ₹300 × 100 = 4.00%.

    Why the other options are wrong:

    • (a) That forgets to multiply by 100.
    • (b) That divides the wrong way round.
    • (d) That treats ₹12 as a percentage.
  6. Warranty claims · AdvancedBetter installation cuts your claim rate from 4% to 2.5% on 3,000 units a year. Each claim costs you ₹600 unreimbursed. What is the yearly saving?
    Show answer

    Answer: (c) ₹27,000

    3,000 × (4% − 2.5%) = 45 fewer claims; 45 × ₹600 = ₹27,000.

    Why the other options are wrong:

    • (a) That is the old total cost, not the saving.
    • (b) That is the new total cost.
    • (d) That is the saving per unit, not per year.
  7. Workshop · Basic3 bays, 25 working days, 4 jobs per bay per day, ₹900 average per job. Monthly revenue?
    Show answer

    Answer: (c) ₹2,70,000

    3 × 25 × 4 × ₹900 = ₹2,70,000.

    Why the other options are wrong:

    • (a) That is for one bay.
    • (b) That is for one day.
    • (d) That uses 4 bays.
  8. Workshop · BasicThe workshop billed ₹3,60,000 for 450 jobs. What is the revenue per job?
    Show answer

    Answer: (b) ₹800

    ₹3,60,000 ÷ 450 = ₹800.

    Why the other options are wrong:

    • (a) A slip of ten.
    • (c) A slip of ten the other way.
    • (d) That is the number of jobs.
  9. Workshop · IntermediateWorkshop fixed costs are ₹1,20,000 a month. Revenue per job is ₹1,000 and contribution per job is ₹600. Break-even jobs a month?
    Show answer

    Answer: (b) 200

    ₹1,20,000 ÷ ₹600 = 200 jobs.

    Why the other options are wrong:

    • (a) That divides by revenue, not contribution.
    • (c) A slip of ten.
    • (d) Not fixed costs ÷ contribution.
  10. Workshop · Intermediate4 bays are available 8 hours a day for 25 days. Paid work used 560 bay hours. What is bay utilisation?
    Show answer

    Answer: (c) 70.00%

    Available = 4 × 8 × 25 = 800 hours. 560 ÷ 800 × 100 = 70.00%.

    Why the other options are wrong:

    • (a) That is the unused share.
    • (b) That divides the wrong way round.
    • (d) A decimal slip.
  11. Workshop · AdvancedA job bills ₹1,500 (₹900 labour + ₹600 parts). The parts cost ₹480 and consumables ₹60. Technicians are on fixed salaries. Contribution per job?
    Show answer

    Answer: (c) ₹960

    ₹1,500 − ₹480 − ₹60 = ₹960.

    Why the other options are wrong:

    • (a) That ignores parts and consumables cost.
    • (b) That counts labour only and ignores the parts margin.
    • (d) That forgets consumables.
  12. Workshop · AdvancedAdding a bay costs ₹30,000 a month in fixed costs and should bring 50 extra jobs at ₹700 contribution each. What is the effect on monthly profit?
    Show answer

    Answer: (a) ₹5,000 more

    50 × ₹700 − ₹30,000 = ₹35,000 − ₹30,000 = ₹5,000 more a month.

    Why the other options are wrong:

    • (b) That ignores the extra fixed cost.
    • (c) That adds the fixed cost instead of subtracting it.
    • (d) The contribution (₹35,000) is bigger than the cost (₹30,000).