After Sales Management: The Importance of Aftermarket Lifetime Value for OEMs

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The expansion of after-sales service through targeted services represents a significant growth opportunity for machine manufacturers and distributors. Through product and process innovations it is indeed possible to build better and better equipment more and more efficiently and thus to increase sales. But the real potential lies in after sales management. A large part of the revenues of the big players in the machinery industry already comes from after sales service. This is an example that small and medium-sized OEMs in particular should also take as a model. Do you know the aftermarket lifetime value of your products?

Winning new customers to increase sales is one side of success for machine manufacturers and distributors. But securing existing customers and retaining them for years through targeted after-sales management is increasingly becoming a competitive advantage.

The chart shows how the share of service offers in the turnover of industrial companies has developed in recent years:

Source: Deloitte

You see: After sales margins are increasing more strongly than production margins. A clear signal to increase the aftermarket lifetime value.

How is the aftermarket lifetime value calculated?

Many people are familiar with customer lifetime value, but what is aftermarket lifetime value?

It expresses the value that an OEM can achieve during the life cycle of a machine in relation to its purchase price. To determine this, the following parameters play a role:

  • How long is the life cycle of the machine?
    Here, of course, the longer the better. And indeed, good services such as reliable, regular maintenance are essential to extend the lifetime and maintain the value. OEMs can accompany this lifetime with good service contracts over many years and thus build up a business unit in its own right.
  • What is the market penetration during the life cycle of the machine?
    Here it depends on the attach rate, i.e. the number of machines for which services have been agreed. This includes agreements for maintenance or for repairs, as well as contracts for the supply of spare parts. In other words, everything that goes beyond pure sales and warranty services.
  • How high is the average annual service turnover per machine?
    All revenues related to after-sales services are included here. To make the value comparable, it is expressed as a percentage of the purchase price.

Let’s take a calculation example:

You sell a machine for 2 million euros. In addition, you put together a service package that generates 200,000 euros in revenue for you annually. The aftermarket lifetime value is therefore 10 percent.

This is not a utopian value. A cross-industry McKinsey study shows: The average EBIT margin for aftermarket services is 25 per cent, and exceeds that for pure sales by 15 per cent.

After Sales Management: OEMs have the best prerequisites

The facts and opportunities are therefore clear. OEMs even have an optimal starting position here, because they know their products better than any third-party supplier and usually have an intact network of customers and sales partners.

They can also gain important insights from their after sales services. Let’s take the spare parts service, for example. If they know which spare parts are needed particularly frequently and in which cycle they are required, they can incorporate this knowledge 1:1 into the research and development of their production.

But where are the challenges?

We took a closer look at the packaging industry – a sector from which many of our customers come. What about their after sales activities?

  • 75 % of medium-sized OEMs in the packaging industry describe their customer service as cost- and time-inefficient
  • 85 % of medium-sized OEMs in the packaging industry would like to monetise their services

 Source: Own research based on interviews

Improving after-sales services is not only the wish of the OEMs themselves in order to secure their competitiveness in the long term. On the customer side, improved customer services are also demanded, and ideally on a digital basis:

  • 90% of packaging facilities service technicians want their OEMs to offer a digital solution that allows them to easily find and order spare parts and access information about their machines

In this respect, it is time to act and increase aftermarket lifetime value

Do you know the top 3 reasons for machine suppliers and distributors to expand their after sales services? Read more about it.

So what is stopping small and medium-sized OEMs from expanding their after sales management and putting it on a digital footing?

There are three main factors:

  • they lack the capital to develop an appropriate service platform
  • they do not have the expertise required to do so
  • they do not have the time in their day-to-day business to tackle a project of this magnitude.

We have the right solution for all these challenges. Why develop your own platform when you can access ours faster, cheaper and without any inhouse IT developers?

Get to know Makula and see for yourself how easy it is to digitise customer service. After sales management is not rocket science, but your key to success.

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Are you ready to digitalise your after-sales services?

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