Charge what your claims will cost you, plus enough margin to stay ahead in a bad month. In practice: estimate the expected claim cost per plan, pick the share of warranty revenue you are willing to pay out, and divide. Then check the result against what shoppers see elsewhere.
This post is only about the price. For whether to sell extended warranties at all, read extended warranty upsell: is it worth it?. For setup, terms and claims, see how to sell an extended warranty on Shopify. The bigger picture is in the warranty guide.
What is the formula for extended warranty pricing?
Two steps.
Expected cost per plan = failure rate in the covered period × (cost per claim + handling per claim)
Price = expected cost per plan ÷ target claims ratio
- Failure rate is the share of plan buyers who file a valid claim during the extended period. Pull it from your repair log, warranty requests and returns marked “defective”.
- Cost per claim is what one claim costs you: parts and labor, or a replacement at your cost (not retail), plus shipping both ways.
- Handling is support time, inspection and admin for each claim.
- Target claims ratio is the share of warranty revenue you are willing to spend on claims. At 40%, you divide by 0.4, which is the same as multiplying by 2.5. The rest covers payment fees, refunds on cancelled plans, bad months and your margin.
If you have no failure data yet, start with a cautious price on a small group of products. Raise or lower it once a few months of claims come in.
What does the math look like for one product?
Here is a worked example. The numbers are made up to show the method; use your own.
Say you sell a $400 kitchen appliance that comes with a 1-year included warranty. You offer extended tiers that start when the included warranty ends. Each claim costs you $140 for repair or replacement and shipping, plus $15 of handling, so $155 in total. Your target claims ratio is 40%.
| Tier | Extra years covered | Failure rate (example) | Expected cost per plan | ÷ 0.4 | Price | Share of $400 |
|---|---|---|---|---|---|---|
| 1-year extension | 1 | 3% | $4.65 | $11.63 | $11.99 | 3.0% |
| 2-year extension | 2 | 7% | $10.85 | $27.13 | $27.99 | 7.0% |
| 3-year extension | 3 | 12% | $18.60 | $46.50 | $46.99 | 11.7% |
A few things to notice:
- Longer tiers cost more, but not in a straight line. Failure rates usually climb as a product ages, so year three can cost you more than year one.
- Round up, not down. Rounding $46.50 down to $44.99 quietly lowers your margin on every plan.
- The default tier matters. Make the tier with the healthiest economics your default, not just the most expensive one.
How do your prices compare with the market?
Market prices are a sanity check, not a target. Retailers and third-party providers price for their own claims, costs and commissions.
Warranty Week, a trade publication, surveyed 236 extended warranties on kitchen ranges from 24 online retailers in February 2026. It found:
| Plan length | Average price as a share of the appliance price |
|---|---|
| 1 year | 3.5% |
| 2 years | 6.8% |
| 3 years | 8.7% |
| 7 or 8 years | 21% |
| All plans | 10.5% |
Two cautions before you compare. First, this covers one product category, so your products may fail more or less often. Second, Warranty Week found that 23% of the plans started after the manufacturer’s warranty expired; the rest started at purchase. A “3-year plan” that starts at purchase includes a year the manufacturer already covers, so it is not the same as three extra years.
If your price lands far above the market for similar products, check your failure rate and costs. If it lands far below, check that you have not left out shipping or handling.
Should the price be a fixed amount or a percentage?
| Price type | How it works | Good fit when | Watch out for |
|---|---|---|---|
| Fixed amount | Same price on every product | Products in the group cost about the same | Higher-priced items pay too little for their risk |
| Percentage of product price | A share of each product’s price | Prices vary within the group | Cheap items get a fee too small to cover shipping and handling |
Claim costs do not scale neatly with price. Two-way shipping and support time cost about the same on a $120 item as on a $600 one. So a percentage that works on expensive products can lose money on cheap ones.
The fix is to price by product group:
- Group products by price range and by how often they fail.
- Run the formula per group using that group’s failure rate and claim cost.
- Use a fixed amount for groups with similar prices, and a percentage for groups with a wide spread.
- Skip products where the price needed to cover claims would be a large share of the product price. Customers will not buy it, and the FTC tells them an extended warranty “might not be worth the cost if a product isn’t likely to need repairs.”
What else changes the right price?
When cover starts
Starting the extended period where your included warranty ends keeps the terms honest and the price easy to justify. If the plan starts at purchase, say clearly what it adds during the first year. The FTC’s consumer page warns that an extended warranty “might cover different issues than a manufacturer’s warranty”, so shoppers will look for the overlap.
What the plan covers
Defect-only cover draws fewer claims than cover that includes accidents. If you add accidental damage, price it separately with its own failure rate. See accidental damage protection for that math.
Per-claim fees and limits
A per-claim fee (a deductible) or a cap on claims per plan lowers your expected cost, and you can lower the price to match. State them up front. The FTC tells shoppers to look for “deductibles or fees you must pay each time the product is serviced.”
Who buys the plan
Customers who add a warranty are often the ones who expect heavy use. Expect a slightly higher failure rate among plan buyers than across all units sold, and keep that in your claims ratio.
Taxes and refunds
Sales tax rules for service contracts differ by state, so ask your accountant how to treat the warranty line. Decide what happens to the warranty fee when a customer returns the product, and write it into your terms.
How do you set warranty prices in Sam?
Sam Shipping Protection lets you run extended warranties yourself and keep the fee. The in-app Warranty page says the feature is available on the Standard plan and above. The full steps are in the warranty user guide.
- Create one rule per product group. Open Warranty and click Create rule. Give it a name, such as “Appliances $300+”.
- Set a priority. When a product matches more than one rule, the rule with the higher priority number wins. Use this when a product sits in two groups.
- Choose the target products for that group.
- Pick the price type. Choose Percentage of product price or Fixed amount for the rule.
- Add one offer per tier, such as a 1-year and a 2-year extension, with the price from your math. Mark one as the default.
- Write the content. Say what each tier covers and link to your full terms.
- Check the preview and save.
The chosen warranty is attached to the product in the cart, so every order shows which tier the customer bought. That gives you the sales side of your pricing data. Sam does not decide or pay warranty claims; your terms and your claims process do.
How often should you review your prices?
Check each product group every month, then reprice every quarter or after a big change, such as a new supplier.
| Metric | How to calculate | What it tells you |
|---|---|---|
| Claims ratio | Claims paid ÷ warranty revenue | Above your target: raise the price or narrow the products |
| Attach rate | Orders with a warranty ÷ orders of eligible items | Very low: the price or the offer may be unclear |
| Cost per claim | Total claim cost ÷ number of claims | Rising: update the formula |
| Complaints | Support tickets about warranty terms or price | Rising: make the terms easier to find |
Remember that claims lag sales. A 2-year extension sold this month will not show its full claims cost for years. Until then, compare claims against plans that have already reached the end of cover, or keep a cautious margin.
Change one thing at a time, such as the price of one tier, so you can see what moved the numbers. The same review habit works for delivery cover; see how much to charge for shipping protection.
Frequently asked questions
How much should I charge for an extended warranty?
Work out the expected claim cost per plan (failure rate in the covered period times the cost of each claim, including handling), then divide by the share of warranty revenue you are willing to pay out in claims. With a 40% target, that means multiplying the expected cost by 2.5.
What do extended warranties usually cost as a share of the product price?
It varies by product and term. In a February 2026 Warranty Week survey of 236 extended warranties on kitchen ranges, the average plan cost 10.5% of the appliance price, from 3.5% for one-year plans to 21% for seven- or eight-year plans.
Should I price extended warranties as a fixed amount or a percentage?
Use a fixed amount when the products in a group cost about the same, and a percentage when prices vary. Claim costs such as shipping and support do not shrink with the product price, so give cheaper products their own fixed-price rule.
Should the extended warranty start at purchase or after the included warranty?
If it starts at purchase, the first part overlaps with the warranty that already comes with the product, so the plan adds less than its length suggests. Starting where the included warranty ends makes the terms clearer and the price easier to justify.
Can I set extended warranty prices in Sam Shipping Protection?
Yes. In a warranty rule you choose Percentage of product price or Fixed amount, then add one tier per warranty length and mark one as the default. You can create separate rules for different groups of products.
Sources
Part of our guide: Warranty →