The Hostway Blog

Service Contracts

When purchasing office equipment, you'll often have the option of purchasing a service contract on the new equipment. In fact, sellers will often go out of their way to try to get you to purchase a service contract. The main reason for this is that the profit margin on the service contract is often greater than the profit margin on the piece of equipment you're purchasing.

A typical service contract will cover the cost of repairing and maintaining a piece of equipment over a certain period of time. Some service contracts can be renewed, while others automatically renew when the contract expires.

If you're like most consumers, you've probably purchased a service contract simply because it made you feel safe and secure knowing that your new office equipment will be fixed at no cost if it should ever break down. After all, you've just spent a considerable amount of money on a new piece of equipment — a few extra dollars for a service contract can't hurt. Wrong! In most cases, the extra money you spent for the service contract is wasted money.

Before purchasing or renewing a service contract, consider the following suggestions to help minimize your expenses. You may be able to eliminate the service contract all together, or at least reduce the cost if you do decide to purchase one.

Avoid contracts or agreements on highly reliable equipment. Purchasing a service contract on a piece equipment that is highly reliable is an unnecessary expenditure. Personal computers, fax machines, telephones and laser printers are examples of equipment generally regarded as highly reliable. In some cases, the cost of the service contract is actually more than it would cost to simply have the equipment repaired at your own expense. Keep in mind that the cost of new technology often drops dramatically in the year after you purchase it, and by the time it breaks, you may be able to purchase a new one for half the price of the original.

Purchase or renew contracts or agreements for less reliable equipment. In some cases it makes sense to purchase a service contract. This is true for the types of equipment you consider to be less reliable — those pieces of equipment you use more frequently, and that tend to be more susceptible to breakdowns. A copier is just one example of the type of equipment falling into this category (although they have improved a great deal over the years). The cost of a service contract can be very reasonable if you compare the cost of routine maintenance and repairs with the actual cost of the service contract.

Don't pay for "house calls." If you do purchase a service contract, make sure you know what kind of service you're actually paying for. Sometimes you will actually be paying for more service than you really need. For example, some service contracts will cover the costs of house calls — where the service representative or repair technician actually comes to your place of business to service or repair the equipment. This feature may be necessary if the covered equipment cannot be moved or easily disassembled and carried to the nearest repair shop. But for those pieces of equipment you are able to move and carry to the nearest shop, you may be able to reduce the cost of the service contract by as much as 30 percent to 50 percent by opting out of the house call feature in your contract.

Avoid long-term service contracts. Before purchasing a service contract, determine if the price is refundable in case you should happen to sell or replace the equipment covered by the contact. Chances are the amount you will pay for the service contract is not refundable. So before purchasing a four-year service contract on machine you only plan to keep two years, do your homework. Purchasing a long-term service contract is cheaper than a short-term contract when you consider the cost of the coverage on a yearly basis. If you plan to keep the covered equipment for the full term of the contract, then you'll benefit more from the long-term contract and its yearly lower coverage cost. If you cannot safely assume you'll keep the equipment for the contract's full term, then it may end up costing you more than a short-term renewable contract.

Also remember to check the warranty on the equipment before purchasing a long-term service contract. The warranty may actually cover the costs of any repairs also covered by a service contract. In this case, purchasing the service contract is completely unnecessary.