What sets the top performing aftermarket service businesses apart?

Every manufacturer that performs aftermarket service has one goal in mind: to prevent asset downtime and maximise equipment usage for their customers. So, what do the top 20% of firms do differently to the other 80%?

First, why are manufacturers increasingly offering aftermarket services?

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Not only do aftermarket services provide stable revenue streams, they also do so at higher margins.

Revenue from new product sales has been steadily declining for the past several years, forcing many manufacturers to consider offering aftermarket services – the provision of parts, repair, maintenance, and digital services for the equipment they sell.

Not only do aftermarket services provide stable revenue streams, they also do so at higher margins. The average margin on aftermarket services is 25% compared to just 10% for new equipment sales.

When making the transition from a traditional make-sell business model to a more service-driven proposition, many business are tempted to dive right into a data-driven digital transformation made possible by the Internet of Things (IoT).

After all, with rising competition in the services economy, proactive service offerings powered by IoT are the key to differentiation and success.

Yet, some manufacturers have discovered that they can earn more revenue from core aftermarket services—the provision of parts, repair, and maintenance – than they can from digital solutions.

In fact, one OEM discovered that 90% of its near-term growth would be fuelled by core services, not digital solutions.

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In a recent study of services leaders at manufacturing and services businesses, almost a third of respondents (30%) strongly agreed that it was important to become a digital business.

Overall, 100% of service leaders agreed that it’s important to wade into the digital waters, but most are unsure of the destination or how to get there.

To learn more, download this free whitepaper which clearly and simply explores the meaning of digital transformation, what makes for a successful digital transformation strategy, how to foster a true digital culture and more

The takeaway for any business considering the move into aftermarket services is this: analyse your aftermarket lifetime value – the total revenue you can receive from servicing your installed base – to determine which services contribute more to your bottom line.

Depending on the industries you serve, it could be the traditional core aftermarket services and not IoT-enabled digital solutions that are the main driver behind your services revenue.

Pressures driving IoT investment

Aftermarket service - Connectivity is not an end to itself, but rather a means to resolve specific business issues.
Connectivity is not an end to itself, but rather a means to resolve specific business issues.

Adopting new technology for technology’s sake is never the answer. In fact, the enthusiastic embracing of IoT across industries has led to an overzealous “over-connection” of devices with little operational oversight.

The trap that many manufacturers fall into is implementing IoT without tying the investment to specific business objectives.

In other words, connectivity is not an end to itself, but rather a means to resolve specific business issues.

The top four pressures driving IoT investment are:

  • 39% of organisations that perform field service work noted ‘the need for increased insight into asset performance’ as their number one challenge
  • 35% stated that they ‘need to have a more proactive service model’
  • 32% stated that they ‘need to improve resource tracking for scheduling purposes’
  • 31% stated that they ‘need to develop new services tied to asset usage and performance’

The majority of these pressures address a central problem for service organisations: the need to have a more proactive response to asset failure. The days of waiting until equipment fails to repair it are long gone; the new standard is to predict and prevent downtime.

Keep in mind that these assets can be internal, such as vehicles or mobile devices used by technicians in the field, or they can be serviceable assets or equipment owned or licensed by your customers.

Regardless of who the end users are—your employees or your customers—the fact remains that both groups are positively impacted when downtime is minimised or eliminated.

Real-world benefits that IoT offers manufacturers performing aftermarket service

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Best-in-class firms improve asset performance yearly at a rate 16% higher than the industry average.

The best-in-class organisations as defined by Aberdeen Research are those firms that make up the top 20% of firms based on their performance across a diverse set of metrics.

What is the one common theme among these top performing organisations? Their superior results can be tied directly to their investment in IoT technology:

  • Best-in-class firms improve asset performance yearly at a rate 16% higher than the industry average
  • They improve their operating profit yearly at a rate of 15% higher than the industry average
  • They increase customer satisfaction rates 10% faster than the industry average.