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2020 Challenges Bring Opportunities for Aftermarket Services in 2021

Kalle Aerikkala< Kalle Aerikkala December 10, 2020

There’s no question 2020 was a challenging year for everyone. But for many, the industrial sector included, there is a silver lining. The challenges come with opportunities.

The global pandemic forced a shift in how business gets done and many organizations chose to speed up their digital transformations. They also took steps to change the way they sell – from an exclusive focus on physical assets to more advanced services that are based on outcomes. Company leaders also looked to proven ways they could grow their bottom line more meaningfully: pricing.

To examine the journey toward more services, we partnered with Copperberg for the 2020 Aftermarket Benchmark Survey Report. In it, we looked at organizations’ current state of servitization so you can see where you stand compared to your peers and identify where growth opportunities may lie. The good news is there are many.

A Wave of Digitalization

One fact was clear – embracing the wave of digitalization propelled by COVID-19 has fundamentally changed how service businesses operate. To maximize returns on this evolution, you need a clear digital strategy.

Our study found more organizations are responding by defining and implementing their digital strategies. Last year, 70% percent of respondents indicated they had no such digital strategy. This year paints a very different picture.

  • 18% have a clearly defined digital strategy
  • 39% have a partial digital strategy
  • 24% are developing one now

This increase in positive responses reflects that most companies have embraced the symbiotic relationship between digitalization and servitization.

The Pricing Effect

The aftermarket services business contributes considerably to profitability. While most organizations reported starting services as a necessity (to support warranties or break/fix), more are looking to aftermarket services as a revenue making opportunity. And for good reason. Our study found that while the services revenue for the majority is less than 30%, the contribution to profit is exponentially higher. Specifically:

  • With 30% services revenue, the profit contributed was more than 30%
  • With 30-49% services revenues, the profit contributed was more than 50%
  • With 50-69% services revenue, the profit contributed was more than 70%   

To grow your services revenue, pricing practices must be developed. We know that a 1% improvement in pricing can lead to more than a 7% increase in profits. This study finds that respondents rely on an average of 2-4 pricing methods.

To learn more about what your peers are doing with the aftermarket business, download The Copperberg Aftermarket Benchmark Survey Report here. It creates a comprehensive blueprint of the service transformation journey and regardless of where you currently stand, you’ll gain a view of where your peers are and therefore what you can and should be doing to reach the next level.