Aftermarket Services: The near-term growth opportunity in targeting the right customers

For industrial manufacturers, capturing organic growth through new-product development can be slow, costly, and risky—as necessary as long-term innovation may be. Companies easily spend years, and millions of dollars, on R&D, prototyping, customer research, and marketing before finding out whether the new offering will resonate with customers.

In contrast, growth through aftermarket services offers a comparatively short and straight path to new revenue streams. By improving their approach to aftermarket services, companies can capitalize on their existing portfolio and installed base, along with existing account data, to segment customers and focus resources on the most attractive leads. The result is improved financial performance that sustains the company through the larger, long-term bets it makes.

Industrial companies that understand their customer base, adequately prioritize aftermarket sales, and relentlessly focus on execution can boost their services revenue by 30 to 60 percent within three to five years—without requiring large investments in capex, new-product development, or cost-reduction programs. Moreover, this growth directly feeds cash flow and tends to be stable through business cycles. And it can be quickly monetized, within just weeks in some cases.

Industrial aftermarket services comprise a wide range of offerings, from spare parts to software to field operations, end-of-life services, and guaranteed up-time (also known as “power-by-the-hour” arrangements). Collectively, these offerings create a large value pool that few companies fully exploit, often because someone else is providing these services other than the company that sold the product.

Consequently, in most industries, the percentage of customers who purchase services in addition to equipment is low. In agriculture, for example, aftersales among even the highest-performing manufacturers typically cover less than half of the installed fleet, on average. Other industries, such as power generation equipment, small electrical equipment, and civil aerospace, show huge disparities between low and high performers, with best-in-class players exceeding 80 percent aftersales coverage. That leaves significant room for manufacturers to improve.