Will Your Head of Services Maximize Service Revenue and Get an iPAD Pro or a Lump of Coal for the Holidays?

Introduction

For many companies, the December holiday coincides with the end of the fiscal year. As we approach this milestone, an important question must be answered: Is your organization successful in maximizing service revenue, and will the CFO and CEO be happy?

The following Aberdeen chart addresses this question:

Leaders are defined as the top 35% of service teams when looking at customer satisfaction and warranty handling performance. If your answer to the title question is positive, the Services business is doing exceptionally well, or the budget was too low. Otherwise, look for the lump of coal in your stocking.

Context

Today, all business leaders are looking for growth, with services being the best place to look. Why? Because you are selling to the company’s existing customers. You understand the products, applications, operational issues, and people. And you know how their competitors are using and supporting your products. This should be a relatively easy sale.

The common question is, “What percent of total revenue should come from services?”  And the answer is “It depends.”  It depends on the industry, product type (hardware, software, mixed), what is included in services revenue (repairs, spare parts, training, consulting), and your services portfolio.

It also depends on expectations set during the sales cycle and when your engineers installed or serviced the equipment. For example, it is not unheard of for salespeople to tell prospects, “this product is so reliable you don’t have to buy a service contract.” Or a service engineer may say, “I am supposed to tell you to buy a contract, but I honestly think it is unnecessary. We respond to service calls on a first-come-first-served basis, and I live near your plant, so there is no travel time.”

In my consulting practice, I deal with companies where services revenue ranges from 10% to 60+% of total revenue, mostly from service contracts or spare parts. The good news is that service contract renewal rates are generally in the 85% to 95% range, so once you start building your contract base, the revenue naturally grows. However, the percentage of total revenue may not increase because it depends on year-over-year product sales.

What can the head of services do to maximize service revenue?

Here are a few steps to take to grow services revenue:

1. Make sure your services and products create real value. Talk to customers and ask them questions like:
   1. What are the most important outcomes you expect from our products?
   2. How well are we delivering for you?
   3. How do you feel about our prices?
2. Review your customer satisfaction data to identify areas where you must improve. Part of this process involves looking at operational data (response time, restoral time, first-time fix, and price (for non-contract customers). Some customer questions are:
   1. Did our end-to-end restoral time meet your expectations? What is your requirement?
   2. Was the information easy to find? Where can we do better?
   3. Did our communication of plans and status meet your expectations? How can we do better?
3. Make sure the Sales team is working with you.
   1. Are they selling contracts at the time of sale? What is the contract attach rate? Is the rate growing year-over-year? Do they need training?
   2. Are you getting new service ideas from the sales team? Do you provide feedback about your decisions? Do you give salespeople awards and atta-boys?
   3. Are the salespeople incentivized to sell services?
4. Search for new revenue sources.
   1. Ask Marketing and Development if sensors and communications can be retrofitted to older products to enable service to perform remote support (and sell) easily.
   2. Ask customers how they perceive your company’s level of innovation.
   3. Talk to customers about working closely with them to create unique services that can scale to a segment of the customers. By working together, you can identify customers’ operational issues that the two organizations can resolve.
   4. Investigate whether your organization can support other manufacturers’ equipment in the same facility.
   5. Ask your team members for ideas about growing revenue since they spend most of their time with your customers and hear lots of complaints and suggestions.

 

To read about designing service contracts to maximize service revenue click here.

Maximizing service revenue requires a team effort.

The team has to include all the people who do not work for the service organization.

Sometimes you need a fresh set of eyes and ears to help because your plate is overflowing or your internal resources are either maxed-out or not the right sort for this type of work. In any case, when thinking about external resources, please consider Middlesex Consulting.

Related article: 7 Services To Sell To Customers Who Choose In-House Field Service

About Middlesex Consulting

Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing,  Customer Experience, and Engineering. If you want to learn more about how we can help your organization maximize service revenue, please contact us or check out some of our free articles and white papers here.