Here’s The Right Way To Do Extended Warranties

Aaron Hoos

Extended warranties.

They suck, right?

I should know, I sold ’em too. (Well, I sold a type of them when I was doing leases.)

Look, we all what the deal is: extended warranties are high dollar gambles that most often sit as piles of cash in a giant vault and the Scrooge McDucks that sell extended warranties just swim around in the money.

Last time I bought a laptop, I knew exactly what I wanted before going into the store. I went in, got a clerk to get me the laptop, and then braced myself for the silliness that would follow.

It was a dance: The clerk gave all the lines and I tried not to roll my eyes while I heard things like, “My customers are always glad to have it,” and “You just never know,” and my personal favorite: “more and more computers are breaking down these days.” Then I say no. Then they ostensibly go talk to their manager and come back with a slightly lower quote because they like me. Then I say no again and they wish me well and send me to the cashier.

Same thing happens when I rent a car. And when I buy one. And when I buy any major electronic equipment or appliance.

Sure, the money is good for the companies selling them but let’s face it, extended warranties are silly:

  • They are rarely needed
  • If a circumstance arises where they are needed, they are often forgotten

… they’re basically cash. And customers know it. So you either end up with a customer who begrudgingly pays, or you end up with a customer who chooses not to pay but is still annoyed anyway because they have to put up with the BS of the extended warranty sale pitch.

Every knows it’s just a bump in the price of whatever product you’re selling.

And if ever there was an opportunity for a company to innovate on the financial side of their products, extended warranties is the opportunity.

So, when I was bought a new freezer recently, I was pleasantly surprised…

I chose the freezer and braced myself for the inevitable extended warranty pitch.

I got ready to say “no” until the salesperson added: “If you don’t use it, you get 100% of it back.

That changed everything.

… If I don’t use the extended warranty, I get 100% of it back.

It works like this: I pay now for the extended warranty coverage. The freezer is covered for 3 years from all the various things that the extended warranty covers. And at the end of 3 years, if I didn’t use it, I get the money back. (Mind you, I get them money back as a store credit.)

This is a small change but it’s huge. I think it’s smart. And I think more and more companies should adopt it as a strategy to sell their extended warranties.

  • It’s still pure cash that piles up in your Scrooge McDuck vault so you can swim in it.
  • A few people will use the warranty, most won’t.
  • Those that don’t use the warranty feel like the store owes them money and will make a purchase at that store in three years.

So, this small change in extended warranties is a simple play to increase your income now but also lock in customers who will likely come back and purchase more. Because, chances are, if they have $50 or $100 or $500 that they think is owed to them by the store, they’ll purchase far more than that amount in a future purchase.

I’ve written before about how most guarantees are weak and I wished companies would give their guarantees some teeth. And this is a powerful extended warranty strategy that more companies should adopt.


Aaron Hoos, writerAaron Hoos is a writer, strategist, and investor who builds and optimizes profitable sales funnels. He’s the author of several books, including The Sales Funnel Bible.

The 5 steps to identify your sales funnel… This is the starting point of a more profitable business!

I frequently assert that your sales funnel is the most important asset in your business. It’s the structure around which you build your business, it’s the pathway that prospective buyers follow on their way to giving you money, and it’s a strategic tool you can use to grow your business.

The starting point for you to master your sales funnel and take control of your business is to draw out your sales funnel. Draw it out, add notes to yourself, and the document becomes the useful tool you can refer to daily in your business to help you make decisions and work on your business.

Here’s how to draw out your sales funnel…


You need a narrowly defined target market — one that is large enough to to market to, has enough money to pay you for your product or service, but small enough that you can establish yourself as an expert. (Note: “Everyone” is NOT your target market). Take some time to research your target market and learn about them. When researching, dig beyond the point where your target market’s needs intersect with your solution. Learn everything you can about your target market and you’ll uncover new ways to market to them and new opportunities to add value. To get you started, use this tool I created: 55 questions to answer when defining your sales funnel’s target market.


People buy a product or service to solve a problem or fulfill a need. They never rush out and buy the very first solution the millisecond they discover their problem or need. There’s a progression in their thinking:

  1. At first they discover their problem or need.
  2. Then they realize they have to do something about it.
  3. Then they seek out some solutions.
  4. Then they weigh those their solution options.
  5. Then they decide whether the solutions are worth the cost.
  6. Then they buy.

Those steps I’ve just outlined are an over-simplification of the “evolution of mindsets” that people go through before buying from you. For small purchases (like an impulse item in a grocery store check-out line), these evolutions are measured in seconds. For major purchases (like a house), these evolutions are measured in weeks, months, or sometimes even years. After researching your target market, write out the mindset evolutions that they are most likely going through. (Use the list above as a starting point but then make adjustments according to your knowledge of your target market).


Once you know what your target market is thinking on their way to buying from you, you can craft marketing and sales messages around those thought processes with the goal of moving them from one step to the next. Activities are comprised of two things: The message you want to communicate and the action you want your target market to take.

Pro tip: Don’t try to get your target market to move from their current mindset to the point of sale. Just get them to move to the next mindset in their mindset evolution.


Once you know who your target market is, you know where they like to spend their time and attention. Once you know what mindsets they have, you know what it takes to sell to them. Now you can use this information to put your sales funnel to work. Create marketing and sales messages (see Outline the Activities, above), and then put those messages in the channels (media) where your target market will notice them.


Your entire sales funnel “points” to a sale. And that can look very different from one business to another. Some businesses charge up-front and then deliver the product or service; some businesses deliver first and then charge. And there are other paygate/delivery configurations as well. (Check out my blog post Sales funnel paygates for more information and for a list of other blog posts on this topic). Select a paygate and delivery model that will encourage the most purchases from your customers but will also ensure consistent cash flow and manageable accounts receivables for you.


This really simple step-by-step method to crafting your sales funnel is useful for new and existing businesses that need to optimize performance and improve profitability. It’s also just a starting point. Check out some of my other blog posts about sales funnels.

Case study: Increasing profitability with passive income

Businesses survive (and thrive!) by continually generating income. But as a business owner, it’s easy to get caught up in a vicious cycle of performing a service, getting paid for it, performing another service, getting paid for it, etc.

That turns into a treadmill because you become dependent on that income and if you are not able to do the work, the income dries up. Additionally, you can’t grow beyond the time you have available to perform the service.

Therefore, if you are a business owner who wants to grow your business, you need to do it with passive income. Passive income is sometimes misunderstood. Some people think of it as “do-nothing-and-make-money”, which is basically impossible.

Rather, you should think of passive income as “work-once-and-get-paid-on-an-ongoing-basis”. That’s a big difference and successful passive income generation does require some initial investment of time, money, and effort.

Building passive-income-generating assets for your business is a great way to transition your business from a active (service-dependent) income to passive income. (If you’re looking for some ideas about passive income, check out this blog posts 5 levels of content monetization).

One of my clients came to me with that very problem. She is a well-known expert on the topic of finances but she was on a “treadmill” of services — consulting and speaking — that prevented her from growing her business a lot more. She had published one book, which helped her gain that expert status, but it was time to do more.

I brainstormed a few different options to help her generate some passive income and the one we decided to build first was an e-course that people pay to take.

First, we built a free e-course that provided great content. Second, we created a paid e-course that provided an advanced version of the free e-course. With so many people attracted to the free e-course, we were able to promote the paid e-course to a targeted, highly-interested audience, and people started paying my client for the course.

Just that one course wasn’t enough to completely replace and exceed the income my client was generating as a consultant and speaker, but that wasn’t her goal. Rather, she wanted to create a steady stream of income that continually trickled in, which is what is happening right now as people subscribe to her e-course.

And the best part is: Now that this e-course has been built once, it runs automatically and requires very little effort on her part to ensure that it continues. So the investment she made once will pay for itself and continue to pay her over and over again for years to come.

Here’s why I still do my own taxes by hand

It’s tax day today at my house.

Most Canadian personal income tax forms are due on or before April 30th, but the exception to that rule is if you own a business in Canada. Then your personal income tax forms are due June 15th. So I’m completing my taxes today and sending them in. (I didn’t mean to leave it until the last minute but some of the numbers for these forms are derived from my corporate income tax, which I just received back from my accountant on Tuesday afternoon).

It surprises people when they hear that I still do my taxes by hand — I write them out on the forms in pencil for the rough copy and in pen for the good copy. Very old school!

There’s a very simple reason for it:

When I used to be an employee (years ago), I would get my paycheck, look at the after-tax (take-home pay) number and be happy with that. I completely ignored the pre-tax amount and the enormous amount of taxes I was paying. And, like most people, I got excited when I received my tax refund… as if I had just won the lottery. But tax refund money is MY money and I had inadvertently loaned to the government as an interest-free loan. That’s why I think it’s a good idea to owe the government money on your income taxes.

After I started my business, I quickly became aware of the inordinate amount of taxes that one has to pay; I became increasingly aware of the disparity between my pre-tax income and my post-tax income. And, I started to learn about all the ways that businesses can legally reduce their tax exposure (i.e. with deductions for business expenses).

That knowledge (of my pre-tax and post-tax income, as well as opportunities to legally reduce the tax I pay) is worth thousands of dollars to me every single year. That knowledge is something I don’t want to lose. I want to be regularly reminded about the impact that every incoming and outgoing dollar has on my income tax. I want to be reminded that a big chunk of every dollar I earn is going to other things. I want to understand the influence that tax has on my business. It’s similar to why I mostly remodel my own home. The knowledge is very useful to have.

I could have my personal income taxes done by an accountant. Or I could do my taxes on software. But I know my myself well enough to know that as soon as I remove myself from sweating through those numbers with pen and paper in hand, that’s the moment I stop paying attention to taxes in my business. And before long, I’ll join the many people who mistakenly look forward to tax refunds and miss out on additional legal tax-reduction strategies.

So today, I’m sweating through some numbers and I’m probably in a bad mood (because I generally think I’m over-taxed and today of all days I definitely think that!). But it’s a good practice that I intend to maintain for as long as Canada Revenue Agency accepts paper forms.

Forget profit… Just do the first deal

Entrepreneurs put a lot of pressure on themselves to start a profitable business. Although that is the ultimate goal, it can be a huge obstacle at the very beginning. And I’ve seen that obstacle actually PREVENT entrepreneurs from starting a business — they’re so focused on “how do I earn a profit on this deal?” that they freeze up and don’t actually complete the transaction.

I thought about this problem from time to time but never put words to the idea until a real estate investing client of mine mentioned a similar problem that occurs among real estate investors. He says that aspiring real estate investors will similarly freeze up and avoid doing the first deal because they can’t figure out all the details and they’re worried about how they’ll make money on it.

The same can be said for first-time capital market investors who buy a stock and then watch that stock drop. (And there’s some kind of rule in investing that almost guarantees it WILL drop!!!)

There is a solution… and I have to attribute this solution to my friend and client, the real estate investor I mentioned above: Mark Evans (‘The DM’). Mark gives his real estate investing students some great advice that is as true in the financial and business world as it is in the real estate investing world: He tells his students not to bother trying to make any money on their first real estate deal. If they do, great. But if they don’t, don’t worry about it. Instead, just do the deal. See how it works. Work out the bugs. Watch how the money flows. You can always make money on your second and third and fourth (etc.) deals.

Entrepreneurs and capital market investors should learn the same lesson: Profit is important in the long run but in the short run, the more important lesson is getting started and learning how the business/stock/property/deal/whatever works. That takes the pressure off of making money the first time. Use whatever income you do make to cover some of your costs, but consider the real value of the transaction to be educational rather than financial.

Do the deal. Forget about profit for the first time… and learn.

I’ve recently started up a couple of other businesses and that is my initial goal. If you are starting a business, or buying a new real estate or financial investment, or even if you’re trying something new (like a new line of business or a new style of investing), steal this idea: Forget profit on the first deal. Just do the deal and “profit” from your new-found knowledge.