30 Aug Ten ways to improve Service Revenues & Profitability
Many industrial goods manufacturers think of services only in terms of supplying spare parts. Service champions however realize that there is a wide assortment of administrations that they can give, for example, installations, training, retrofits, overhauls and outsourcing-which can all be profitable.
Ten Ways to improve Service Revenues & Profitability
Define the Service Business Model:
To define a service business model, executives need to make purposeful choices along several dimensions, including service philosophy, financial aspirations, service offerings, associated risk exposure, target customer segments and organization structure. The very act of recognizing service activities as belonging to a different business model is a critical first step in defining a service business model. The next step is creating a new value proposition and supporting it with a distinct operating model.
Adopt Design to Serve People:
A design-to-service approach can help maximize the total profit possible from a particular product or customer relationship. It also increases the number of customer touch points, as it requires customers to contact the original equipment manufacturer for certain parts and service tasks throughout the lifespan of a piece of equipment. If done properly, it raises customer satisfaction and brand loyalty. A thoughtful design-to-service approach also helps in increasing the productivity.
Defend and Develop the entire Installed Base:
The installed base constitutes one of a manufacturer’s strongest assets, yet most companies don’t tap its fullest potential. In most cases, there is considerable room to enhance the quantity and quality of after sales services offered to existing customers. At the same time, many companies do not have a central, comprehensive view of their installed base especially if they have grown rapidly through acquisitions and never integrated their customer’s lists. Scrubbing these databases and actively reconnecting with the customers can be an easy and quick way to advance the service cause.
Service Third Party Products:
Manufacturers often hesitate to provide services to competitors installed bases. As a result this service business is picked up by competing manufacturers or by independent service providers found in sectors such as construction technology, machinery packaging and engine manufacturing. Yet servicing third party products can offer a way to spread competencies to new markets and generate additional revenues.
Manufacturers that aspire to service third party products will have to make a series of investments. After that, they can secure a steady stream of revenue, and they raise the odds of retrofitting the next piece of equipment or selling that customer a new product.
Proactive selling raises performance regardless of where a company stands in its service evolution. Studies have revealed that selling proactively manages to raise revenues often more than 20% and boost profitability by more than 30%.
Even a company is expanding, after a point of time, a separate sales organization focuses on services can be created. These sales service forces need to have appropriate knowledge and tailored incentives. These sales service managers should determine which customers to treat as key accounts and set targets for service sales as individual accounts.
Employ Value Based Pricing:
In a service business with profit margins as high as 60-70%, the upside potential of value based pricing may seem limited. However, by shifting from traditional pricing paradigms to advanced value based pricing, companies can actually increase both sales volume and margins.
Build a Service Factory:
The service factory approach emphasizes consistent processes, best practice sharing and continuous improvement. It can be established by standardizing the offerings and delivery of services. Companies should also thrive to standardize their delivery process and tools as well. Field service personnel for example could be equipped with mobile devices that provide technical information on all equipment types and list of tasks that specifies the order and time period in which they need to be done.
Establish Clear Performance Metrics:
In order to achieve excellence, companies need to have facts and figures to make decisions. This requires KPIs that are different from those used to monitor a new product business. By having a different KPI, there could be a step change in terms of productivity improvement paired with a continuous-feedback loop.
Empower the Service Organisation:
Usually companies focus on new products with services being a secondary priority. But services tend to be highly profitable, and executives are often satisfied with their current performance level, not believing that there is much more room to grow. At the same time, it’s important not to over steer and focus exclusively on services. Companies must strike a balance between manufacturing new products and servicing them. In many cases companies could earn even greater returns by treating the service business as a separate entity that has profit and growth responsibilities.
Develop a Service Culture:
A strong service culture will not just view services as a lever to sell more products but as a key differentiator relative to competitors. It helps to break up the challenging task of changing the culture of an organization into small tactical steps. As industrial goods manufacturers face pricing pressure on the product side and tight spending by customers, well run service operations provide a renewed source of profitable growth. Intelligent investments in service businesses can yield high and sustainable returns, and the initial investments may not need to be large.