That the cost of going back out is real, unpriced, and hidden inside paid field time no invoice explains; that a payroll subtraction gives you a control total the tickets can't; that the right way to size it is to triangulate four methods, not trust one; and that the same obligation, left contractual and open-ended, is what turned a termite warranty into a $60 million settlement.
Definitions, because most of the confusion is here
The completed job is the denominator throughout, because the completed job created the obligation. Get these straight before any arithmetic or it will drift.
| Completed job | A finished, paid job. It creates the obligation and is the denominator. |
| Return incident | One customer problem traceable to one completed job. |
| Return visit | One dispatched trip for that incident. An incident may need more than one. |
| Return allowance | Net return cost (gross, less recoveries) divided by completed jobs. |
Two cost concepts, and conflating them is the most common error. Resource cost is what the return consumes — paid field hours times the loaded cost of a technician and a truck. You always incur it. Capacity cost is the contribution margin of the paying work the return displaced; you only incur it when the schedule was full. The Brief's $43 is resource cost only. What changes with capacity is the total economic damage, which is larger.
The arithmetic in full
Stage one, the ceiling. Paid technician hours, less hours billed to jobs, less vacation and training. For the worked example: four technicians and 8,320 paid hours, less 5,510 billed to jobs, less 510 hours of vacation and training. That leaves 2,300 hours — 28% of everything Wes paid for. Twenty-eight percent may look high; in route-based work, paid time also includes driving, loading, and collecting parts, almost none of which gets written against a job. At a loaded cost of $143 an hour, 2,300 hours is about $330,000. Across 1,900 completed jobs, $175 a job.
| Drive time between jobs | 966 h · 42% | $73/job |
| Return visits on completed jobs | 570 h · 25% | $43/job |
| Shop, loading, parts runs | 460 h · 20% | $35/job |
| Overrun on jobs that quoted short | 304 h · 13% | $23/job |
Sensitivity. Loaded hourly cost: at $110 the allowance falls to $33 a job; at $180 it rises to $54. Return rate: at 8 per 100 the allowance is $29; at 18 per 100 it is $64. Recoveries: if a manufacturer reimburses parts and some labor on warranty returns, the net allowance can fall by a third or more.
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The worse the callback problem, the less your tickets can be trusted
Return visits are undercounted because opening a ticket for unpaid work costs the technician time and buys him nothing — so the undercount is worst exactly where returns are most frequent. Four methods, and you want all four. The payroll subtraction gives a ceiling and a control total; it doesn't depend on anyone recording anything. Customer-contact counting gives incidents: count inbound calls, texts, and emails within 90 days of a completed job, deduplicate into incidents, and compare with return tickets — in the worked example the incident count ran about 50% above the ticket count. Verification calls estimate prevalence and are the only method producing a number nobody had to write down. Record matching gives classification and cause, the only thing that lets you reduce the rate rather than only price it. Triangulate: the subtraction bounds it, contacts scale it, verification calibrates it, matching explains it.
Frequency, severity, recoveries, and timing
Frequency and severity move independently — a shop with a low return rate and heavy returns can cost more than one with a high rate of ten-minute adjustments, so track both. Recoveries — manufacturer parts reimbursement, distributor credits, subcontractor rework, customer-paid trip charges — are the number that belongs in a price; skipping this is the most likely way to overstate the allowance. Cohort timing: a return from a December job arrives in January, so dividing a calendar year of return cost by a calendar year of completed jobs mixes two populations. For a defensible number, group returns by the month of the originating job and wait until each cohort has passed your normal return window. This is a management costing exercise, not a financial-statement one; whether your accounts should carry an accrual is a separate question for your accountant.
Every hidden hour has a different remedy
| Drive | geography & sequencing | routing |
| Loading & parts runs | stocking & preparation | truck inventory |
| Overrun | estimate error | estimating discipline |
| Return | work or expectation failure | quality, scope & pricing |
| Unrecorded productive work | data failure | capture system |
Four kinds of promise
Sort your obligation two ways: how long the promise runs, and what you owe when it is called. Redo the work, bounded time is most trades — low risk, still unpriced. Redo the work, unbounded time is foundation repair and waterproofing — lifetime and transferable, capped in severity by your own scope but not in duration. Pay for the damage, bounded time is uncommon but sized. Pay for the damage, unbounded time — termite damage warranties — is rare, and where settlements come from. In the redo columns you can price by frequency times average cost. In the pay-for-damage columns you cannot, because the distribution has a long tail: Terminix had millions of contracts and external actuaries and still revised upward repeatedly. The treatment for that column is a contractual ceiling or transfer to an insurer, not a better model.
A promise gets more expensive while it sits in the filing cabinet
Three forces. Reporting lag: damage is found long after the work, so current revenue is matched against a fraction of current true cost. Accumulated exposure: a renewing agreement adds another year in which the covered event can occur and latent damage can develop. A hazard that isn't stationary: the Formosan subterranean termite entered the US in postwar cargo, was first collected in South Carolina in 1957, and is now established in roughly a dozen states, never eradicated once established. University of Florida researchers have projected that half of South Florida structures could be at risk of subterranean termite infestation by 2040. A promise priced from yesterday's failure rate can become uneconomic without any change to the wording, the customer, or the work you performed.
The time limit that may already apply
Many states limit how long construction-defect claims can be brought through a statute of repose that runs from substantial completion regardless of discovery. Surveys put the number of states with one covering real-property design and construction at around forty-six, periods commonly in the four-to-fifteen-year range; Texas sets ten years for architects, engineers, and contractors. One counterintuitive point: Texas legislated in 2023 to reduce the repose period from ten years to six for contractors whose written contracts include specified warranties — there, offering a warranty shortens the window in which you can be sued. None of which helps where the promise is contractual rather than a defect claim. A contract that says you will pay for damage is enforceable on its own terms. That is the Terminix situation, and it is where you want a lawyer. This is orientation on law, not legal advice.
Terminix, in full
Termite protection agreements renewing annually; on many, the promise included repair of termite damage to the structure, with no stated ceiling and no expiry. Terminix's own 10-K described the damage warranty as the differentiator that made it market leader in that product line.
| 2017 | Litigated claims begin rising, concentrated in Mobile Bay. |
| 2019 | Renewal prices raised sharply in Mobile and Baldwin counties. |
| Nov 2020 | $60M settlement with the State of Alabama; $49M charge. |
| 2020–2029 | $140–150M of termite damage claim expense expected above historical norms. |
| End 2021 | $130M accrued self-insured claims, net. |
The Attorney General characterized some 2019 increases as reaching a thousand percent, intended to push customers to cancel lifetime contracts or accept new ones with fewer benefits. The mechanism matters more than the number: a renewal on a lifetime agreement is the customer's option to exercise, not the company's to reissue. Terminix could not unilaterally rewrite the promise, and the scalable lever it chose was the renewal price. The claim this issue makes is narrow: the route Terminix used required the customer's agreement, and it did not offer one.
Carrier and enforced visibility
A public company issuing product warranties must disclose annually a table reconciling its warranty liability: opening balance, payments, accruals for new warranties, and — the fourth line — adjustments for warranties issued earlier. That fourth line exists to show, in public, how wrong the previous estimate was. Carrier's fiscal 2022 disclosure opened at $524 million, added $184 million, settled $171 million, and closed at $551 million. The operator has the same obligation to himself and nobody to enforce it. The absence of the number in his books is structural, not careless.
Four ways this is wrong
The return share is modeled — in a shop with long drives, returns could be half what the Brief says; the verification calls settle it in an afternoon and should run before any price moves. Recoveries may be large — net gross cost down before pricing. Raising price may not be available — in a commodity market a 5% move can cost more in volume than it recovers, and the Play covers the alternative, reducing the return rate. Terminix may not generalize — it is an extreme instance chosen because it is documented; most operators sit where the stakes are points of margin, not settlements. A hypothesis offered to be shot at: we expect return visits between 8 and 18 per 100 completed jobs in most residential service businesses. Send us your number.
Axiom Research · The Operator's Brief · No. 03 · The Workup