By Ivan Moore, Jolt Consulting
Jolt Consulting Group’s FTO article The Service Excellence Curve: Achieving Best-In-Class Service Delivery, described that one of the fundamental pillars of a best-in-class service organization is having a complete and accurate view of your installed asset base. While easier said than done, once accomplished a service organization can leverage their install base data to significantly increase revenues in four primary ways.
Reduce Warranty Leakage
Warranty claims are a significant cost line expense for most companies, for example, claims in the Medical X-Ray and Laser Equipment industry average of 1.7% of product sales. Warranty leakage is the portion of warranty claims where the company provides services that are assumed to be covered under warranty but fall outside the company’s entitlement scope. Having visibility into the installed asset and their specific warranty parameters will reduce warranty leakage, or in other words, increase revenues by charging customers for service that would otherwise be performed free of charge under warranty.
Best-in-class companies also connect the warranty status and end date information with their sales and marketing organization to drive additional sales. Providing visibility into the specific asset approaching end of the warranty period automatically triggers sales and marketing activities for the sale of extended warranties, service contracts, or replacement parts.
Maximize Service Contract Revenue
Service contracts attach rate is the percentage of product sales transactions that include a service contract during the initial sale and is widely varied across industries from 50% for manufacturers to 70% for hardware companies. Regardless of industry, a significant portion of a company’s customers are not under a service contract at any given time. Associating service contracts with the complete install base will provide two (2) opportunities to monetize the data and drive service contract revenue. The first is to analyze the install base and market to customers whose installed assets are NOT currently under warranty or a service contract and the second is like the “hand-off” to sales and marketing at the end of the warranty period. As customers approach the end of a service contract, sales and marketing activities should have full visibility to drive renewals or upgrade customers to higher service contract tiers.
Increase Parts Sales
The install base should also include insight into the asset hierarchy or bill of materials (“BOM”) with important components and sub-components identified and tracked. The BOM should be updated as service is performed over the life cycle of the asset to ensure the “as-maintained” record is accurate. The component and sub-component data should be continually mined for revenue-generating opportunities, for example, components that are nearing end of life or are no longer supported and require a replacement or upgrade. The opportunity to immediately impact financial results is significant as parts can realize gross margins of 55% or more.
Migration To Performance-Based Service Contracts
Performance or outcome-based service contracts are results-oriented and guarantee uptime or the production level of an asset. Companies that offer performance-based service contracts are considered best-in-class service providers in Jolt Consulting Group’s Service Excellence Curve℠. Instead of providing a predetermined set of services (e.g., semi-annual preventative maintenance visits, break/fix SLAs, covered parts and labor, etc.), performance-based service contracts focus on outcomes the end customer desires. For example, an x-ray machine service provider guaranteeing a 99.9% x-ray machine uptime to a medical provider.
Service organizations that effectively position and communicate the value of a performance-based service contract can charge a premium over traditional contract values for guaranteeing uptime thereby increasing company revenues. However, fundamental for a company’s ability to offer these contract types is that they have an accurate view of their install base and the associated service data and analytics to effectively price and support the service uptime guarantee.
Service organizations are continually challenged to create additional revenue streams and should prioritize strategies to cross-sell and up-sell within their existing customer base. To effectively monetize these opportunities, an accurate and complete view of their installed asset base is a fundamental building block and without this foundation, a service organization will struggle to maximize revenues.
About The Author
Ivan is Chief Operating Officer of Jolt Consulting Group and works with companies to accelerate their growth with assessments of their sales and service delivery, optimization of business processes, operating metrics, and deployment of enabling technologies.
Warranty Week, June 27, 2019, Warranty Claim Rates by Industry, TSIA, February 2018 Report