For many companies, the December holiday coincides with the end of the fiscal year. As we approach this milestone, there is an important question that must be answered: Is your services business generating enough revenue and profit to make the CEO 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, then either the Services business is doing extremely well or the budget was set too low. Otherwise, look for the lump of coal in your stocking.
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 understand how their competitors are using and supporting your products. This should be a relatively easy sale.
A common question I hear is “What percent of total revenue should come from services?” And the answer is “It depends.” It depends on the industry, type of product (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 that sales people tell prospects “this product is so reliable you don’t have to buy a service contract.” Or a service engineer may say, “I am suppose 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 range from 10% to 50+% of total revenue, with most of that coming from service contracts. The good news is that services contracts renewal rates are generally in the 85% to 95% range so once you start building your contract base the revenue generally continues to grow. However, the percent of total revenue may not grow because it depends on year-over-year product sales.
What can the head of services do to maximize revenue?
Here are a few steps to take to grow services revenue:
- Make sure your services products create real value. Talk to customers and ask them questions like:
- What are the most important outcomes you expect from our products?
- How well are we delivering for you?
- How do you feel about our prices?
- 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, price (for non-contract customers). Some customer questions are:
- Did our end-to-end restoral time meet your expectations? What is your requirement?
- Was information easy to find? Where can we do better?
- Did our communication of plans and status meet your expectations? How can we do better?
- Make sure the Sales team is working with you
- 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?
- Are you getting new services ideas from the sales team? Do you provide feedback about your decisions? Do you give sales people awards and atta-boys?
- Are the sales people incentivized to sell services?
- Search for new revenue sources
- Ask Marketing and Development if sensors and communications can be retrofitted to older products to let service easily perform (and sell) remote support.
- Ask customers how they perceive your company’s level of innovation.
- Talk to customers about working closely with them to create unique services that can scale to a segment of the customers. You can identify customer’s operational issues that the two organizations can resolve by working together.
- Investigate whether your organization can support other manufacturer’s equipment in the same facility.
- 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.
Revenue growth is 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.