Labor warranties have future costs. A reserve keeps them from surprising your cash flow.
In this article
Why a reserve matters
Labor warranties mean free visits later, often months after the job was paid. Without a reserve, warranty work drains cash during slow seasons. Setting money aside makes warranties a planned cost.
Know your history
Review past warranty calls and their real cost: labor, parts and drive time.
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Calculate a percentage
Start with a percentage of install revenue based on history.
Separate account
Keep the reserve in a separate account so it isn't spent.
Track usage
Record each warranty call against the reserve.
Price it in
Warranty costs belong in your pricing.
Reduce the need
Quality control and good installs lower warranty costs.
Ask your accountant
Accounting treatment varies. Get professional advice.
An example
An HVAC company found warranty calls cost about 2% of install revenue. It started moving that amount monthly to a separate account and stopped feeling surprised by winter warranty spikes.
Know your numbers
Track warranty cost as a percentage of install revenue by crew and by equipment brand.
Common mistakes
No reserve, ignoring drive time and never reviewing the percentage.
Price every call so it pays.
We help service businesses set clear policies, book better jobs and turn more calls into profitable work.
Frequently asked questions
How much should a service company set aside for warranties?
It depends on your history of warranty calls. Many companies start with a small percentage of install revenue and adjust based on actual warranty costs. Ask your accountant.