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.