After writing over 90 posts about service revenue and customer retention, it is now time to show why these two subjects matter.  I am going to tell this story using publicly available data of the percent of total company revenue contributed by service.  This data is from a collection of high tech companies and demonstrating the importance of the services revenue contribution to the company’s overall performance.  Also, I will add a brief discussion of other information I found while reading lots of Annual Reports that may help you understand your own business’ results.After writing over 90 posts about service revenue and customer retention, it is now time to show why these two subjects matter.  I am going to tell this story using publicly available data of the percent of total company revenue contributed by service.  This data is from a collection of high tech companies and demonstrating the importance of the services revenue contribution to the company’s overall performance.  Also, I will add a brief discussion of other information I found while reading lots of Annual Reports that may help you understand your own business’ results.

2013 Analytical Product Companies Results

For this section, I selected some of the largest companies in this segment, as well as a few others that are very familiar to me:

ThermoFisher has a large business selling commodities and consumables that do not require service, which helps explain the low percentage of service revenue. Bruker has been growing through acquisition and is in the phase where it is integrating the new businesses into the Bruker system.  So, depending on your product mix, if you are in this industry and not producing at least 15% of total business revenue from your service department, group, or business then you are not delivering up to your full potential. And if you are producing at least 15%, then set your sights higher because 30% is achievable.

2013 Miscellaneous High Tech Industries

I selected a few companies that are in the high tech space and are in “interesting” industries.  This list is clearly not representative of the high tech sector but does illustrate the range of results that are being achieved today:

Xerox has been working for at least 10 years to transition from a copier manufacturer to a full service document management business.  I believe they have succeeded!

Applied Materials is interesting because their products are so expensive that their services organization has to be very creative to contribute such a large percent of revenue.  They refurbish and resell older generations of products that are taken as trade-ins for new equipment sales.  They also offer extensive installation and upgrade services plus others that generate wonderful results.

The Oracle Story Is Special and demonstrates the power of service margins:

Look at these numbers; License updates (after the initial sale) and product support combines generates an 88% margin.   That is minting money!  And overall they contributed 74% of the corporate margin. While you cannot expect to easily achieve these results, if you are supporting tangible products, you can expect to generate something on the order of a 50% margin (depending on how warranty and installations are handled in your accounting system).

What About Geographic Influences?

The FEI Annual Report breaks out Product and Service revenue by major geographic areas:

This data resonates with me.  In my experience, Asia Pacific organizations are reluctant to purchase service contracts unless they are a subsidiary of an American business (then they follow the parent company’s model). European companies generally fall somewhere in-between North America and AsiaPac. and may not follow the American parent’s model if it conflicts with their culture.

A Final Story 

I know a U.S. subsidiary of an international company that manufactures industrial controls sold to OEM’s who incorporate the controls into products sold in a variety of industries. This company provides end-user tech support and field service if the end-user contacts them.  Even though the control manufacturer generates service revenue from their customer’s customers, and only know about these people when they call for support, their service business contributes a little more that 15% of the business’ total revenue. In my opinion, this is quite an achievement and shows what making service revenue an important element of the total revenue picture can do.