Do Extended Warranties Add Up?
It’s the same question that we all ponder whenever we make a major purchase – from a new or used vehicle to a refrigerator or even a cell phone. Does an extended warranty make sense, and is it worth the additional cost and the added hassle of trying to cash in on the warranty if something does indeed go wrong? When you magnify those relatively small personal purchases by the costs associated with purchasing a dozen new computers, software packages, cell phones, etc. for a small business, the question of whether or not to invest in an extended warranty takes on a much greater financial significance.
Before you sign up for an extended warranty, explore what the standard warranty covers. In many cases, new electronics will come with a 12-month manufacturer warranty. Double check what your manufacturer offers as far as length of time, and then delve into the details of exactly what their specific standard warranty covers. Many will cover manufacturing defects, but most will not cover damage caused by your employees (like dropping that shiny new laptop on a concrete office floor). They also generally will not cover lost devices. When does this matter? It may not if you are buying a desktop that will only be used in your office. If you are purchasing laptops that employees will take to jobsites or cell phones that will go everywhere with them, property damage, theft and loss become more of an issue.
Consider exactly what that extended warranty covers – all extended warranties are definitely not created equal. Don’t assume that an extended warranty affords blanket protection for any eventuality. While normal wear and tear is generally covered by extended warranties, if you are looking for protection against theft, loss, drops, spills or any other damage caused by an employee’s failure to properly maintain or store the device (think a laptop thrown into the backseat of a car along with a child’s juice box), read the fine print to make certain the policy you are considering covers it.
Then, take a hard look at all the costs associated with the extended warranty. Experts disagree on how much is too much to spend on a warranty. Most warranties cost between 10 to 20 percent of a device’s purchase price, according to the Service Contract Industry Council, whose members offer about 80 percent of the warranties sold in the United States. According to some standards, if the warranty is at or exceeds 20 percent of the cost of your device, you are paying too much. Others put the percentage at 50 percent, which seems pretty high to us. Don’t forget to consider how reliable your device is supposed to be – that’s going to vary by manufacturer and model, but some have a far better reputation for lasting longer than others, so weigh that when you consider what you need.
“If a particular piece of equipment is critical to your business, you are likely to look at it – and at protecting it – far differently than you would view other devices.”
Finally, consider how long you actually intend to keep the equipment you are purchasing. If it’s a short term investment, a long-term extended warranty might not make any sense. (For example, if you know you are going to replace your team’s cell phones with the new version when it comes out next year.)
One last – and critically important – consideration is your personal comfort level with uncertainty. This can vary widely with the device in question. If a particular piece of equipment is critical to your business, you are likely to look at it – and at protecting it – far differently than you would view other devices. In the end, whether an extended warranty is worth it comes down to a calculation of risk vs. reward and whether or not having that certificate will give you peace of mind.