External failure costs definition
/What are External Failure Costs?
External failure costs are those costs incurred due to product failures after they have been sold to customers . These costs include the legal fees related to customer lawsuits, the loss of future sales from dissatisfied customers, product recalls, product return costs, and warranty costs. A particular concern is the cost of repairs and servicing, when the seller must take on the cost of sending a repair person to customer sites to make repairs.
External failure costs can be substantial if the result is the loss of customers - and especially when customers tend to buy a company’s products many times.
External failure costs are classified as a quality cost .
