Result Driven Impact

Custom Warranty

Background

Features Furniture Company (FFC) was established in 1988 and is located in the state of California just outside of Sacramento. FFC began as a small used furniture retail company specializing in antique furniture. FFC began to sell new, upscale, modern furniture in order to attract a different market segment along with their antique sales. They now operate four different stores around Northern California.

  • INDUSTRY: Retail
  • SPECIFIC: Furniture Sales
  • ANNUAL GROSS REVENUE: $9.7 Million
  • OWNER STRUCTURE: LLC with two owners
  • EMPLOYEEES: 65
Warranty

Risk Description

Company directors decide that offering a custom warranty for any new piece of furniture may help add value to the company and aid in customer retention. The directors are weary to implement a custom warranty plan due to the cost and disruption to the business operations. The directors are also aware that their competitors are already offering warranties through an association sponsored program.

Business Situation

  • FFC tends to offer top quality furniture at an increased price point. Due to “low price” competitors entering the marketplace, customer loyalty has declined over recent years.
  • FFC currently offers a generous twelve month return policy for any defects or damages to new furniture.
  • FFC attempted to set up an in-house warranty program, however, there were no specific set of procedures for the employees to follow and the warranty was not clearly defined.
  • FFC contacted outside firms to implement a warranty plan. The exorbitant prices, along with the restrictive stipulations in the warranty, deterred the directors from moving forward.

Solution

SRA designed a custom warranty program for FFC. The business directors chose to offer a three-year warranty on any new piece of furniture sold. This warranty would cover manufacturing defects and accidental damage to the piece of furniture including cost of cleaning for spills. For any customer who elected to purchase the warranty, FFC would charge 10% of furniture price.

The money they would have set aside to self-insure this risk would have been considered profit to FFC and taxed accordingly. The Custom Warranty Program allowed the owners to place money in a warranty company using tax efficiencies only available through this program.

Key Takeaways

DETAILS OF THE CUSTOM WARRANTY PROGRAM

  • This CWP can be customized to adapt to any business’s needs that sells, distributes or manufacturers products.
  • The CWP offers a defined warranty and administrative staff to implement the program without disrupting day-to-day operations.
  • The business directors set the warranty terms. The cost of the warranty is a set dollar amount for each product sold and can be purchased during checkout. 
  • The company will provide the warranty document to the customer.
  • The revenue collected from the warranties purchased will move to the warranty company where claims are paid.

BENEFITS TO FEATURES FURNITURE COMPANY OWNERS

  • The program was implemented quickly and efficiently allowing FFC to operate without any business interruption
  • The CWP generated tax deferred dollars maximizing efficiency of FFC’s warranty program.
  • The warranty program was structured to mirror the ownership of FFC. 
  • FFC feels that the added value that the warranty program offers will bring in new customers and retain existing ones
  • FFC has the ability to mitigate other business risks in the future through the use of their warranty program.

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