Aftermarket services act as a profitability powerhouse for organizations in B2B and B2C, even in today’s volatile economic landscape. In this article, Mitch Lee, Profit Evangelist at Vendavo, explores the Annual Aftermarket Benchmark Study 2023’s deep dive into why the strategy is an important source for value creation as well as the three primary benefits that come from adopting it.
The Aftermarket business is a proven way to grow company margin, and recent research has found that more B2B companies that use the strategy are doubling down on it in 2023. The Annual Aftermarket Benchmark Study 2023, a collaboration with Copperberg, found those that generate half or more of their total income from Aftermarket sales and service (32%) grew 7 percent over last year.
This article explores how to use the Aftermarket in 2023, including the benefits, roadblocks, and how to use it to enhance profitability.
Benefits of an Aftermarket Business
In today’s volatile economic landscape, Aftermarket services act as a profitability powerhouse for organizations in B2B, B2C and even B2G (business-to-government). The strategy is an important source for value creation for the companies that employ it, including:
- Long-term revenues
The Aftermarket offers stability during economic uncertainties and market fluctuations. It can provide a reliable stream of revenue even when new product or equipment sales slow.
- Customer loyalty through added value
Profitability in the Aftermarket segment often relies on repeat business and customer loyalty. Manufacturers can create value-added offerings such as maintenance services, spare parts, and upgrades, ensuring that customers continue to engage with the brands long after an initial sale.
- Differentiation and USPs
A well-executed Aftermarket strategy can differentiate a company in a competitive market. By providing exceptional post-sale services and support, manufacturers enhance their reputations and stand out as reliable partners.
The fact that Aftermarket sales and service now generates more than 50 percent of total income for a growing number of manufacturers is good news. They have figured out the secret sauce and they are running with it – and growing profits along the way.
Roadblocks to a Successful Aftermarket Strategy
The Annual Aftermarket Benchmark Study has been following the data since 2019, revealing that the largest group of respondents generate one-third or less of their total income from the Aftermarket. Unfortunately, this also holds true in 2023.
With so much upside, why aren’t more organizations adopting Aftermarket strategies in a bigger way? It’s largely because most consider it a complex, difficult initiative. Manufacturers face significant challenges in building effective service sales teams, for example.
According to the report, the top five reasons include:
- Lack of internal alignment and cooperation
- Lack of understanding customer value drivers
- Conflicting internal strategies
- Increased global competition
- More volatile price levels
Analytics is the biggest tool you have in your toolbox to avoid these roadblocks. Data will provide line-of-sight to what is actually happening across sales, marketing, engineering, and customer support, and it will help direct appropriate internal communication that is key to heading off collaboration challenges and building alignment.
The (Profitable) Way Forward with Aftermarket
If your organization is ready to start on an Aftermarket strategy and grow your profitability in 2024, follow these four steps:
- Build a business case for investment
Pricing and sales operations leaders need to use data to show the impact investing in new capabilities will have on the business. This could include factors like increased revenue, improved profitability, or reduced costs. A company struggling to retain aftermarket customers might invest in new pricing and sales operations capabilities to help them improve customer satisfaction and reduce churn, for example. This would lead to increased revenue and profitability.
- Augment your team with the right expertise
Given the shortage of skilled labor, pricing and sales operations leaders may need to augment their teams with direct hires or partners with the needed expertise. If choosing to hire, it’s important to look for candidates with experience in Aftermarket pricing and sales operations. If working with a partner, be sure to choose one with a proven track record of success.
- Implement proven onboarding and training processes
Once you have the right team in place, you need to implement proven onboarding and training processes. This will help your team get up to speed quickly and start using new capabilities effectively. Be sure to include both theoretical and hands-on training in your onboarding process. Theoretical training should cover the basics of Aftermarket pricing and sales operations, while hands-on training should allow your team to practice using the new capabilities in a real-world environment.
- Choose future–proof technology solutions
It is important to select technology solutions that can be easily updated and improved as new technologies emerge. It is also important to choose solutions that are supported by decades of real-life learnings. This will ensure you get solutions that have been tested and proven in the aftermarket industry.
It’s no secret that acquiring new customers costs more than keeping existing ones. You will grow revenue and build customer loyalty by prioritizing value-added Aftermarket services, upgrades, and parts – even in persistent economic uncertainty.
To learn more about how to strengthen your market position with a strategic Aftermarket business, check out how TruckPro has partnered with Vendavo: Read the Full Case Study
To learn more about how Vendavo can help you on your journey toward improved profitability and commercial excellence, request a demo today.