2020-11-30

What should my Aftersales & Service revenue share be?💶

Your share of Aftersales & Service revenue can simply be calculated by dividing the Aftersales & Service revenue by your total company revenue, of course… The ratio you get identifies as your Aftersales & Service revenue share.

You might appreciate that this is all highly dependent on your definition of Aftersales & Service - that’s why these blogs started with articulating that definition.

The definition also helps in determining your Aftersales & Service processes - which will then lead to the best structure you can have for Aftersales & Service, as we have touched on in last week’s blog.

So far it could all sound pretty academic, but if not done and agreed upon within your company, you set yourself up for possible failure.
A possible failure in reaching more customer satisfaction and to increase your business results. Now, it’s helpful to understand what your Aftersales & Service revenue share result could and/or should be… That will set a target, and drives focus and achievements of results.

Besides looking at your (forecasted) installed base you need to support, trends and market opportunities for Aftersales & Service business, your accessible customers, your possible Aftersales & Service portfolio, and the Go-to-Market strategy you (want to) deploy, it is helpful to start with a benchmark. 

Furthermore, you want to understand the underlying rationale of such Aftersales & Service service revenue ratio’s you will find in a benchmark.
Benchmarking with your nearest competitors is always helpful, the reason being that their business situation is most likely comparable with yours. When Siemens Healthineers wants to do such a benchmark, they will probably look at Royal Phillips Medical and GE Healthcare. It will however difficult to compare the three ratios directly between these companies, since they don’t only differ in how they each define Aftersales & Service, but also because they don’t exactly have the same mix of the installed base they serve. GE reports quite some financial service into their ‘Services’ business, while this is less the case with Phillips and Siemens. Also, the type of technology supported that is dominant in your Aftersales & Service business makes it challenging to directly compare the service revenue shares.

Therefore it is my recommendation to first understand the Aftersales & Service definition and then look at the supported technology types you can recognize. The latter can be done on a very detailed level, but for the sake of simplicity versus the value of the information it should be done on four initial levels:

- Mechanical technologies
- Electro/mechanical technologies
- IT-related technologies, like hardware and networking
- Software

These four technologies all need an increased level of complexity - thus value - for their Aftersales & Service support.

A screwdriver is rather simple to be served and supported, in comparison with an electrical one. Again, A robot’s needs for support are less complex, in comparison with an ERP like SAP.

What typically is used to value the Aftersales & Service revenue is a percentage of the initial investment, and that differs based on complexity to serve and support:
Mechanical invests typically ask for 1%-3% per year, electro/mechanical between 5%-8%, hardware/networking approximately 8%-12%, and software up to 20%.

Based on this you can articulate a first achievable target(s) for your Aftersales & Service revenue share - especially if you also look at what your competitors do. Now, this only gives you a feel for Aftersales & Service revenue related to the installed base you support. 
Besides this kind of support, there are other Aftersales & Service products you could develop, but that’s a topic for one of the next blogs…

Stay safe! 

Peter van Altena - Caresultant