Service as a Revenue Engine: 4 Critical Opportunities

In a recent webinar, IDC’s lead service analyst Aly Pinder, Jr., identified the continued focus on revenue initiatives within service. IDC’s data shows that organizations see this as a key driver for investment in their service businesses. This is taking place for three primary reasons:

• Revenue driven by equipment sales faces stiff competition.
• Service presents higher revenue growth opportunities with a better margin.
• Service is primarily responsible for delivering customer value which is a precursor to revenue success.

Some organizations fail to see the entire picture when it comes to service’s impact on revenue. To expand this view and to accurately measure the impact of service, it is helpful to think along the lines of the following major revenue areas:

Free to fee: revenue leakage 

Revenue leakage for service occurs in two ways. To start, there is time and material leakage where service work done is given away for free or poorly accounted for. As a result, revenue that could have been billed for is not captured by the organization. This is typical of relatively immature service organizations or those businesses where service is still seen as something to include to get the equipment sale. The other form of leakage is contractual or entitlement leakage where poor visibility into what a customer is entitled to under warranty or service contract leads to an over-delivery of service. Reducing both forms of leakage can have a significant impact on overall cost and revenue.

Retain and renew: revenue protection 

Since service owns the relationship with the customer, it is primarily responsible for ensuring that a customer continues to renew their relationship with the organization. This can occur as billed services or as a renewed service contract. Effective capture of service activities and the value delivered by the service organization can also reduce discounting and concessions at the time of renewal. While service might not be responsible for the act of renewal, the actions during the service relationship do have an impact. It can ensure that a customer and their revenue continue with the organization.

Convert & upgrade: revenue optimization 

To tap into the service revenue opportunity, most organizations are generally interested in moving a broader base of their customers from billable services (time and material work) to contractual relationships. This creates a more predictable revenue opportunity that can be delivered at higher margins. When under contract, organizations own the primary service relationship with the customer. It is then easier to mine additional value opportunities based on a better understanding of the customer’s use of the asset. With this understanding, organizations can approach the customer with service parts, contract upgrades, or additional services that unlock additional revenue for the service business. 

Up-sell and grow: revenue maximization

Ultimately, the ownership of the customer and asset relationship yields insight that can have an impact beyond service. A better understanding of the assets in a customer’s environment can lead to competitive replacement opportunities. In addition, knowledge of customer use, asset utilization, and asset health can help the organization guide the customer to an asset replacement, upgrade, or additional purchase. These opportunities, when grounded in service and asset data, are much more likely to get customer interest and support. For this to take place effectively, the commercial organization needs to collaborate and connect with the service business.

When looking at the entirety of the revenue opportunity in service, it should now be clear why so many organizations are now doubling down on their service investments. By some estimates (Accenture Blueprint for Service Success) , service could account for nearly 60% of all revenue in the next 5-10 years.

To build an action plan to support and drive greater service-driven revenue growth at your organization, listen to the steps highlighted by Aly Pinder, Jr., Research Vice President at IDC, and Ron Salvador, GM of PTC’s Service Lifecycle Management business.