Dealers say reimbursement is lacking and the structure is outdated; manufacturers feel hamstrung
What the hot water industry boils down to is simple: It makes and sells large appliances. Sometimes, appliances break. And when that happens too soon, customers expect their spa to be covered by a warranty. Subsequently, dealers anticipate being reimbursed for completing the covered service repairs.
Therein lies the ambiguity — and what many dealers feel is antiquated — of the per-job warranty reimbursement rate.
“The manufacturers haven’t changed their warranty costs in years, so they’re very much behind with $55 to $75 as the going rate,” says one California hot tub dealer, indicating a high of $100 from one manufacturer.
A Washington hot tub dealer notes that it only pockets half of the $150 an hour charge to make a warranty-related repair, and adds the state requires an electrician to be onsite if one year has passed since part purchase. “Our rates have changed once in 14 years for warranty reimbursement,” the dealer says.
Both dealers also indicate that pandemic-related marketplace conditions — extended lead times and supply chain issues — have exacerbated the issue of warranty repair. Add inflation, cost of goods, gas prices and employee wages, and the conversation becomes even more muddled. With many costs going up over the past year, some dealers say they feel jilted when it comes to warranty cost reimbursement from manufacturers, even when the fine print says dealers have the right to charge a travel fee to offset costs. Good for dealers? Sort of. Bad for consumers? Certainly. Customers think they have a three- to five-year warranty, so they don’t want to hear that, six months after they received their spa, there’s going to be a $65 travel fee to come fix it.
“We take [that cost] on ourselves and just take the manufacturer’s warranty reimbursement,” the California dealer says. “Nobody’s making money in that situation because the gas, the labor — you have to order the part and all of this stuff. It’s very time consuming, and nobody is making anything. We’re losing money in the current situation, and [the process] is outdated.”
Aaron Sunderland, operational services manager at The Hot Tub Store in West Sacramento, California, says the reimbursements for warranty work his store executes often needs to be subsidized by the optional trip fee or copay the customer pays.
“We are upfront and transparent about these fees to our customers when they purchase their spas, but in an ideal world, we would prefer to get a reimbursement from the manufacturer that would cover all of our operating expenses [for a warranty repair],” Sunderland says. “We do not aim to profit from warranty work; we just want to provide high-quality service without lowering our bottom line or having to raise our prices elsewhere.”
The trip fee is an option available to most dealers, but some of them don’t want to implement it because it can result in negative reviews, influencing buyers’ decisions and tarnishing dealership reputations.
David Hough, sales and marketing manager at Zorra Hot Tubs in Ingersoll, Ontario, Canada, says warranty repairs are a necessary part of selling new spas despite not generating substantial revenue compared to out-of-warranty repairs.
“[Our manufacturer] is very good with us to process our warranty repair claims, and reimburses us on a consistent timeline,” Hough says. “We don’t ask for more compensation than the warranty repair requires, and [our manufacturer] has not disputed any of our claims. Its rates are below what we charge customers outside of warranty, but we more or less break even on warranty work. This will change as the cost of doing business continues to rise.”
The warranty predicaments could very well be preventable, says Jim Walz, owner of Ideal Water Care, who for more than two decades also has trained dealers with two-day seminars on how to make hot tub servicing a profit center. He says that if manufacturers bought into how efficient dealers could be with their warranty work, they might pay more for their efforts.
“The reality is, if service was their only business, would dealers be running it the way they are today?” Walz asks. “They would start doing things differently, but right now they don’t have to.”
Steve O’Shea, vice president of sales and marketing for manufacturer MAAX Spas, agrees that dealers have more control than they might realize with warranty reimbursement, while conceding that circumstances have tied the hands of manufactures when it comes to pricing structures and parts availability.
“Warranty business grew pretty quickly with the lockdown and people stuck at home wanting it fixed yesterday,” O’Shea says. “The problem is, all manufacturers were put on allocation for raw materials so pumps, heaters, etc., all had to go to production first and then warranty. And that affected a lot of customers.”
Additionally, O’Shea points to the sliding scale of labor rates that each warranty repair job (i.e. pump replacement versus topside control fix) is allotted as a good starting point for reimbursement to dealers.
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“Nobody believes a manufacturer is paying what dealers need to be paid for reimbursement, and I am reviewing the labor rates for all dealers worldwide,” he says. “But dealers want the manufacturers to make them whole regardless of how their service department is run.”
Most dealers seem to agree that choosing their words carefully at the time of the spa sale can help alleviate warranty repair concerns.
“There’s a percentage [of customers] who get it and are completely understanding of it, and then there’s another percentage that have their head in the sand and are shocked to hear there’s a year lead time on hot tubs,” says the California spa dealer. “Initially, we have the conversation about the hot tub and tell them about the long lead time. After they get their tub, if something breaks, we have to put the order in and [tell them] when we can get it for you.”
TIPS TO MAXIMIZE YOUR HOT TUB SERVICE DEPARTMENT
Stock your shelves/trucks and plan your route to make one trip. The average service call time is 22 minutes once the technician is in the customer’s backyard.
Don’t pay people to sit around, have coffee, load trucks and wait for calls to come in. Instead, have technicians start their workday from home with a fully stocked truck and pay them by the job — not by the hour or salary.
Upsell when you are on site: Covers, pillows, filters, mineral cartridges, etc.
If your spa manufacturer is allocating a fixed number of annual spas (i.e. 125), sell them at a premium and apply the extra profit to warranty work.
Do you want another hot tub or another heater? Source and obtain aftermarket parts to use for repairs when the warranty has expired.
If you opt to charge the consumer a fee, don’t refer to it as a “surcharge,” which indicates it may one day come to an end.
Charge for other things like removing decking or structures around the hot tub.
Review the top five profit killers of spa service work for any needed changes: shop time, drive time, overtime, inventory and pay structure.
Consider selling low-price spas that don’t offer extended warranties.
Instead of processing a reimbursement that could take a while, ask the manufacturer for an equal credit on your next new spa purchase.
Ask for a higher rate if you are expected to service a spa out of your area, one you did not sell or that comes with special circumstances.