Summary
OEMs are seeking ways to expand their business in FY 2026. A key opportunity is increasing revenue and profits from their current installed base. To accomplish this, they need to identify the existing revenue and profit for each supported product and for all similar customer groups (for example, small, medium, and large farms, or construction work limited to warm-weather months, and others year-round). Performing these calculations at least twice a year, ideally quarterly, will enhance the data’s usefulness. Additionally, OEMs’ expectations will differ depending on whether they or an authorized dealer supports their customers. A significant challenge is maintaining an accurate customer database. While this process may take time, the only alternative is guesswork, which is unlikely to help achieve the overall goal.
Introduction
In today’s competitive business environment, industrial OEMs are increasingly prioritizing parts and service sales to boost revenue and profit growth. To understand why they made this choice, consider a recent Syncron global report, which shows the following:
“Today, the majority of OEMs report that 10-29% of total revenue comes from aftermarket parts and services. Within five years, that share is expected to climb to 30–49%, as OEMs look to offset plateauing equipment sales in mature markets and volatile order patterns in emerging ones.”
This means that, for FY2026, planning and budgeting for the service and support group will become even more critical than in previous years. Unfortunately, most leaders of the installed base support business, along with the company’s CFOs, lack extensive experience in creating data-driven plans and budgets for the installed base’s profit stream.
Creating the numbers
We all know that analyzing and reporting internal data is usually done with a spreadsheet. Here are two suggestions for organizing your spreadsheet.
- Create a pivot table to gather and analyze large amounts of data in different ways.
- The monthly P&L statement shows whether you’re making more profit each month. While that can boost your confidence (or not), it doesn’t tell you where to improve. The best way to track your progress is to compare your current results with your past performance. This means that you must choose a specific time frame to gather all your data. I recommend collecting data every six months because doing it more often can be a hassle, and once a year is too infrequent. If you determine that six months isn’t too much work, consider doing it every three months.
- Combining results into a single average won’t give you the insight you need. You should divide your data into similar groups to get the detailed information you’re after.
The steps
Step 1: Determine the entity that provides hands-on service for each piece of physical equipment you support. There are three options:
- The OEM is responsible for all services
- Independent dealers are responsible for the service
- Depending on the location, responsibility for the services falls to the OEM, the dealers, or an independent service organization.
I used the word ‘responsibility’ because it’s common for OEMs and dealers to hire a third-party service organization when a large part of a territory lacks an installed base to support a full-time technician, or when an occasional, hard-to-find specialist is needed. For example, a dealer covers a four-state region around Wyoming with a minimal installed base in Montana. In such cases, the OEM or dealer hires, trains, supports, and supplies replacement parts to an independent third-party service company. They also pay the third-party provider and then bill the end user at standard rates.
Throughout this article, we will only differentiate between the OEM and the dealer.
Step 2: Set up the pivot table
Here is a list of all the data fields you will need for your pivot table:
| Product/service name | Quantity deployed | Type of service contracts (OEM) | Number of service contracts (OEM) |
| Total period revenue (OEM) | Total period cost (OEM) | Total period profit (OEM) | Number of incidents (OEM) |
| Total period revenue (Dealer) | Total period cost (Dealer) | Total period profit (Dealer) | Number of incidents (Dealer) |
Note:
- These data fields provide high-level information. You will need to calculate most of this data for each report and for every combination of fields. For example, you might offer 10 services—for each of the 10 unique products you support—such as installation, rapid and standard parts delivery, training, depot repair, software upgrades, hardware upgrades, consumables, and technical support. You will need to determine the profitability of each service for each product, resulting in 100 combinations to report on each period.
- The profitability of selling parts should be reviewed and adjusted regularly to account for the costs of parts and transportation.
- Maintaining installed base data is very challenging. According to Vivek Joshi, CEO of Entytle, a company that provides applications to analyze installed equipment data, “most industrial equipment manufacturers have from 20% to 30+% records that need remediation – cleansing, deduplication, enrichment, etc.”
When I managed two different service businesses, we regularly worked to keep our installed base data up to date. We sent surveys to all customers twice a year, yet we still experienced a 5% to 10% bounce rate. Your installed base data accuracy will improve through a thorough review twice a year.
Keep improving even after reaching your profit goal
Review the CFO’s quarterly profit report to determine if you’re on track to meet your annual goal. However, focus consistently on two targets: 1) the quarterly profit target and 2) making sure you don’t leave any profit on the table unexpectedly, especially if your quarterly goals are easy to reach.
There are several ways to analyze the data from the pivot table. Here are a few examples:
- For each product, calculate the percentage of your supported installed base that has a service contract. Is this percentage growing? Why do some products have more or fewer contracts than others? Are you achieving a reasonable profit on each contract type, or do you need to reevaluate your pricing strategy for some or all of them?
- For each product you support that isn’t covered by a service contract, are all billable services generating a profit consistent with the value they provide? For example, a two-hour response is more valuable than a four-hour response and should generate a higher profit percentage than the slower response.
- On a per-unit basis, compare the profit from supporting end users with the profit earned from selling parts, training, and possibly helping your dealers. You may find that some dealers purchase fewer parts than you supply directly to your customers. This could be because the dealer sources parts from other suppliers, does not use genuine parts, or recommends that customers buy parts on eBay and install them themselves.
Before speaking with these dealers, consult your colleague responsible for managing them. You might discover they are facing similar problems with the same dealers, and the best solution could be for your company to buy out or replace the dealer.
- When evaluating direct labor costs, pay close attention to the growth trend of your total installed base, as technician productivity increases with experience. The field team may require more training or specialized knowledge tools for low-volume, high-complexity products.
Think of your local auto repair shop. I am sure every technician with over six months of experience can fix most Toyota Corollas. But how many of them have ever removed even one bolt from a Morgan or Aston-Martin? (I like low-volume British sports cars!)
All of this can be a considerable effort, but your alternative is to guess, which has an extremely high failure rate.