Warranty & Service Contract Economics: Failure Curves, Claims per Unit Sold, Extended-Warranty Pricing, Attach Rates & Contract P&L

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Turn a fictional table of monthly failure rates into survival and cumulative failure %, expected failures for a sales cohort and the share of first-year failures that happen in the first three months.
• Build a claims calendar: for six monthly sales cohorts you look up the claim rate for each age, place the expected claims in the right calendar month and total them by month and by cohort.
• Build the cost of a repair and of a replacement for four fictional products, apply a repair-or-replace rule with IF and work out the average cost per claim weighted by the claims of the quarter.
• Calculate what the standard warranty costs each fictional product line – in total, per unit sold and as a % of revenue – pool the figure for the whole range and find the line where the warranty bites hardest.
• Price four fictional extended-warranty plans from expected claim cost and admin, gross the cost up to a target margin, round up to a price point with CEILING and check the loss ratio and the margin that is actually left.
• Summarise a day of fictional orders by channel with SUMIFS: units, plans, attach rate and plan revenue, then the contribution after expected claims and channel commission, and the pooled attach rate of all channels.
• Calculate pro-rata refunds for cancelled plans, spread the plan revenue over the three-year term, add the fees retained, take off claims and admin, and find out whether this fictional plan book makes money year by year.
• Compare a year of actual claims with the expectation from the claims model, track the cumulative variance, find the product with the most claims per 1,000 units and chart actual against expected claims.