Servitization can be an extremely lucrative model for manufacturers. According to McKinsey, manufacturers can see earnings-before-interest-and-taxes of at least 25% on services while margin on new sales is often only 10%. Let's explore the key steps manufacturers need to take to deliver profitable servitization services and determine how they can leverage technology to maximize aftermarket profits.
Aftermarket services have become a popular way for manufacturers to add value to products and a measure of their competitive advantage to their peers. Service offerings, such as a warranty and break-fix/depot repair are evolving into service contracts that often include some service level agreement (SLA) for response time, mean time to repair, total uptime or other metrics either related to obligations or outcomes.
As a result, manufacturers are realizing more revenue after the sale—and are reaping the rewards of aftermarket-revenue margins that can be much larger than the original product sale over the lifecycle of the equipment in question.
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