Industrials – Boosting Aftermarket & Services Revenues
A well-run aftermarkets & services revenues help Industrials companies build a more enduring revenue and profits engine. A robust services and aftermarket franchise is one of the most critical ways to consistently drive value in the industrials sector. In addition to helping build customer loyalty, aftermarket & services also represents a material share of profits for many Industrials’ companies. The focus on aftermarkets & services is increased especially when the capex cycle bottoms.
Most industrials companies have some level of an aftermarket & service offering tailored to its customer needs. Firms consistently deliver wear parts, spare parts and other services through the same decades old model.
Some aftermarket models provide mission-critical, specified services (e.g. Smiths Group, John Crane). Some other aftermarket models are Opex driven. (e.g. Sprirax-Sarco). Some have specific lock-in periods, for example Gas Turbine or Elevators. In fact, the level of aftermarket & services revenues (as % of sales) varies significantly (See exhibit below).
Exhibit 1
For example, John Crane, part of the Smiths Group, is the leads market for design, manufacture and support of mechanical seals to the energy and industrial markets. Driven by technological leadership, as well as a business model built around the aftermarkets business, John Crane derives around 68% of its revenues from sticky, stable aftermarkets segment. Only 32% of its revenues comes from the OE business. See Exhibit 2.
Exhibit 2
As this demonstrates companies in the Industrials sector with high share of higher-margin aftermarket revenues can benefit immensely from a positive business mix. In addition to aftermarket & services business often being higher-margin, they also tend to have several additional embedded strategic advantages. We highlight a few below (see Exhibit 3).
Exhibit 3 (Illustrative Example)
Winning in the Industrials sector is driven by a variety of factors. A fresh look at the aftermarkets franchise is necessary to create additional value.
Specifically, firms must look to improve the lifetime value delivered by their aftermarket and services franchise. Amongst others, firms look:
- Capture rate
- Installed base and its characteristics
- Service model
- Inventory models
- Impact of digital
Exhibit 4 (Illustrative Example)
Overhaul of the aftermarkets business begins with comprehensive assessment. Of course, firms must then also focus on build the right organization, tracking the right KPIs and finally, focusing on execution.
——————————————————————————————————————————-
REV Partners. Business Transformation Experts. Digital Transformation Experts. We are a Management Consulting & Advisory firm. We help Fortune 500 & Private Equity clients address the most pressing issues related to Transformation, Strategy, Operations, Organization and Digital. We can also provide experienced experts as Interim “Chief Transformation Officer” or equivalent, to accelerate, lead and execute ambitious Business Transformation or Digital Transformation programs. If you or your organization need support, please contact us or Email us at: meet@revpartners.com. © REV Partners. All Rights Reserved.
