Extended Warranty Program Financial Impact Calculator
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Direct and Indirect Revenue Effects of Implementing an Extended Warranty Program
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This worksheet is designed to provide a directional yet accurate representation of the financial effects of implementing an extended warranty program. Inherent assumptions based on both proprietary and publicly available benchmark data have been made and are called out in Column "C". In our experience, the positive financial effects of an extended warranty program are often the most underlooked and therefore the implementation of such a program is often (unfortunately) deprioritized. If you have questions about any of these assumptions or need help completing this exercise, we encourage you to send us a note at hello@joinclyde.com.
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www.joinclyde.com
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Variable Input
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Important extended warranty metric
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Positive output from implementing an Extended Warranty Program
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Direct Revenue Lift - Immediate
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Revenue (annual)$58,000,000
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Product Coverage Rate50%If you're unsure of how much of your inventory is coverable by EWs, it's safe to assume 50% of goods sold are coverable, depending on the industry.* Pureplay audio retailers, for example, should input 100%.
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Coverable Sales$29,000,000
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Attachment Rate10%
The extended warranty industry average for online attachment rates is ~2-4%. Retailers using Clyde experience an average of 10% or greater.
Your attachment rate is the percentage of products sold with an extended warranty (a "contract") "attached" to the sale of that product.*
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Online retail industry average attachment rate4%
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Product Revenue with Contracts$2,900,000
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Contract value as % of the product sale8.00%
Although the retailer's cost of EWs from insurers vary depending on the term as well as if accidental damage is covered, 4.5% is average.*
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Retailer Extended Warranty Markup50%Retailers using rates secured with Clyde can stay competitive with a markup of 50% in most cases.*
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Retailer Extended Warranty Revenue (annual)$348,000This is your anticipated direct top line revenue lift related to Extended Warranty sales.
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Retailer Extended Warranty Profit (annual) - Immediate$116,000Your profit margin determined by the markup rate you set in B18
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Direct Revenue Lift - Delayed
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Orders per Day100If you know your average orders per day, input that here. Otherwise if you have total # of orders from last year, edit B24 instead.
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Orders per Year36,500
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AOV$475Average order value. You can find this by dividing last year's revenue by number of orders.
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Average # Products per Order1Extended warranties are associated with individual products - e.g., multiple products can be in a single order with only 1 EW attached.
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Average Order Product Value$475This figure assumes an average product revenue value.
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Alternative Average Order Product Value
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Coverable Products Ordered (annual)18,250
Extended warranty sales are tied to specific products. Second purchase revenue, therefore, is tied to how many products are sold with EWs.
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Product Orders with an Extended Warranty1,825
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Failure Rate20%
On average, products with EWs "fail" or qualify for use of the EW policy 20% of the time. If known, you can enter your products' failure rate.*
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Secured Second Purchases365Typically when a damaged product is covered under an EW policy, a replacement order is funded by the insurer at the original store.
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Second Purchase Revenue$173,375
This revenue is not realized at the time of initial purchase, but it is directionally accurate. Here, the lifetime of the customer is also extended.
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Direct Revenue Lift - Subtotal$521,375
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Indirect Revenue Lift - Referrals
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Current Referral Rate45%On average, the net referral rate can be inferred from average NPS, which for online retail averages at 45% of customers.
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Number of additional referral orders per year1,643Customers who make a purchase with an extended warranty have been shown to be twice as likely to refer customers.
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Referral Order Revenue Lift$780,188
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Referral Order Extended Warranty Revenue Lift$93,623
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Referral Order Extended Warranty Profit Lift$31,208
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Indirect Revenue Lift - Subtotal$873,810
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Total Annual Revenue Lift from an Extended Warranty Program w/ Clyde
$1,395,185
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Total Revenue Lift from an Extended Warranty Program - Alternatives$558,074
Although implementing an EW program using a solution other than Clyde still has positive revenue effects, they are typically ~ 60% less effective.
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*By creating the only marketplace of insurance providers offering extended warranties, Clyde is able to aggregate performance data across retail verticals, insurance providers, and many other variables to determine trends and to help boost performance.
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