I am offering yet another example that corroborates the universality of Cost of Service Ratio (COSR). COSR measures the annual cost of maintaining an asset as a percentage of its original purchase price. The cost drivers of annual maintenance cost are the cost of labor and the cost of parts. When purchased from the original manufacturer of the asset, the cost of both the labor and the parts are considerably higher than when other maintenance sources are used. In other words, COSR varies greatly depending on who in performing the maintenance. We have found that when an asset-owner utilizes the manufacturer for maintenance, COSR tends to average between 15% and 30% of the original purchase cost.
COSR can decrease with other service strategies, with in-house maintenance being the usual lowest cost, at a COSR of between 4% and 6%. I offer the graph below and evidence of the validity of this percentage. Warranty Week shows that U.S.-based Power Equipment Manufacturers, during the warranty period for their equipment, incur costs that were in the 1.0% to 1.5% in 2016. These are the figures reported to the Securities and Exchange Commission (SEC) as a part of their annual required reporting. They are accurate.
It makes since that manufacturer’s COSR (Warranty) = 1.5%, that in-house, third party, or service contract COSR would be greater, since there would be inefficiencies and profit in all of these other scenarios.
Indeed, COSR seems to be a universal metric which, through analysis of every market sector, has proven to correlate to almost the exact same percentages. This applies to housing, energy, medical, transportation, power, consumer electronics and all other analyzed product sectors.