On a warranty repair, the part is free but you still spend labor. Warranty pays a set labor allowance; the recovery rate shows how much of your real labor cost it covers.
The example
$90 allowance, $130 labor cost.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | 90 / 130 | — |
| 3 | Recovery | → ~69% |
The formula
The formula:
How it works
How it works:
- Actual labor cost = hours × your fully-burdened tech cost.
- Divide the warranty allowance by it for the recovery rate.
- Below 100%, warranty labor loses money — a real, common gap.
- A service/diagnostic fee to the customer can offset the warranty labor shortfall.
“Free part” warranty work can still lose money on labor. Manufacturers reimburse a flat labor allowance that’s often below a shop’s real burdened cost, so a string of warranty calls quietly drags margin. The fix is to charge the customer a diagnostic or service fee (the warranty covers the part, not your trip and time) and to track recovery by manufacturer — some pay far better than others. Net the allowance against actual cost on every warranty job.
Try it: interactive demo
Warranty allowance and actual labor cost.
Variations
Labor shortfall
Cost − allowance:
With customer fee
Net recovery:
By manufacturer
Average recovery:
Pitfalls & errors
Burdened labor cost. Use your true cost, not the customer rate.
Charge a service fee. Warranty covers the part, not your trip.
Zero labor cost. Recovery on $0 cost gives #DIV/0!.
Practice workbook
Frequently asked questions
How do I calculate warranty labor recovery in Excel?
Why does warranty work lose money?
How do I offset the shortfall?
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