Why Are Sales Leaders Taking Over Service?

For a couple of years now, I’ve been writing about the convergence of Sales and Service. Service, with all its touchpoints during the operational life cycle of a product, has a tremendous capacity for value creation. To reap that value, Service needs a little more Sales DNA. Likewise, Sales needs a little more heart for Service. With a shift from revenue contribution to margin contribution, we see Sales ‘taking over’ the Service Revenue agenda.

You Now Report into Sales

A true story. I’ve had extensive experience running service departments. In all those years my main objectives were focused on service delivery and operational excellence. Over time, I saw an increased interest in service margin and service revenue. When my former organization updated my business objectives with a service revenue target, that goal came as part of a package deal: “you now report into Sales.”

Initially, I did not understand how reporting into Service or Sales when having a service revenue target would make a difference. At that time, the prevailing current was that revenue generation was the prerogative of Sales. Service was seen as a delivery engine focussed on operational gain.

Over the years, I’ve witnessed a dynamic between Sales and Service when it comes to the ‘claiming’ of business case benefits. Lately, a CEO put the reasoning into works while we presented the business benefits of a digital and service transformation project to his executive team. The CEO attributed productivity and cost savings to operations and service. He associated revenue targets with sales. When our business case showed significant revenue benefits through improving installed base visibility and attach rates, sales were the first to claim credits and ownership. For sales, these two improvements translate into touchpoints and conversion. This duo is the bread-and-butter of the sales process.

Bridging Sales and Service

Though sales leaders may be taking over the revenue growth agenda, we all know there is a huge difference between selling products and selling services. The engagement model is different. The buyer role is different. The appraisal of Capex versus Opex has a different impact on decision-making, etc. Most of all, it’s a simple numbers game. Sales revenue is big numbers, service revenue is smaller numbers: Guess who will be seen as the hero?

Any CFO can tell you that services, despite carrying a lower revenue amount, often have a significantly higher margin contribution. What if we were to start incentivizing salespeople with a margin contribution target rather than a revenue target? Great idea? Too radical? Maybe such a move could swing the pendulum in the opposite direction. If all your salespeople were selling services, you would forget you need an initial product sale to make the model work.

So we are back to an earlier blog post I wrote about the importance of Sales and Service Working in Collaboration. The initial product sale is like an ‘entry ticket’ to selling adjacent services. Using the analogy of a theme park, say Universal Studios or Legoland, once you are inside and start spending money, that’s where the EBIT is made. It is the achievement of ticket sales to get you inside. It is the effort of the entertainers to keep you inside as long as possible…and spend money. Are both roles different? Yes. Is one role more important than the other? No.

Building a Portfolio of Lifecycle Revenue Generators

We can transpose the analogy of a theme park to the world products and services by illustrating two common situations:

  • Product sales over-promises: Making it hard(er) for service to sell attached services. In effect, you’re trading high-margin contribution activities for a lower margin contribution.
  • Services portfolio not appealing enough: Making it hard(er) to generate service revenue and providing customers with reasons to churn.

Both examples should compel any product/services company to rethink their revenue generation and margin contribution ‘building blocks.

More and more sales leaders are understanding that revenue generation spans the entire lifecycle of the sold product. The realization that the post-sales value proposition has a symbiotic relationship with the pre-sales value proposition, triggers sales leaders to claim control of the services portfolio and the lifecycle go-to-market strategy.

Now you are thinking: is this the job description of a Chief Revenue Officer (CRO)? Yes, you are close. When a buyer applies a concept like total cost of ownership (TCO) in weighing a purchase, then the response on the sales side converges in the responsibilities of a CRO.

Is it bad for Service when Sales leaders are taking over? I believe not. I think Sales and Service have different but complementary skills to drive the revenue growth agenda. Sales DNA finds Service Heart!

This article is published in Diginomica on June 9th, 2021 and ServiceMax Field Service Digital on June 17th, 2021

Mind the Gap

At Maximize we discussed the topic of Enhancing the commercial maturity of your services business. In that conversation we spoke about ‘the Gap’. The Gap between your current service revenue and the maximum revenue you could achieve when every unit sold would have an associated ‘gold’ contract. This Gap is rather simple to calculate, and it won’t surprise me if the size of the Gap becomes a compelling reason to act.

The Gap

Why is it so important to acknowledge and quantify the Gap? If we don’t want to be like Alice in Wonderland, we need to know both our point of departure and the desired future state. 

We see more and more service executives having a revenue growth target. In the grand scheme of both service transformation and margin contribution, this makes perfect sense. As much as it makes sense, a growth ambition of eg. 20% is ‘only’ directional and not linked to a potential. To make your service revenue growth ambition actionable you need handles; metrics to monitor, levers to pull. The benefit of defining the Gap is, it is SMARTspecific, measurable, actionable, realistic and time-bound).

Let me illustrate this with the analogy of market share. Suppose you say you want to grow your market share by 20%, it makes a huge difference if your current share is 10% or 70%.

Where sales use market share, in the service domain we can use a blend of installed base visibility and attach rate. If you know where 50% of the units sold are installed, and of those units 60% have an associated service contract, you’re addressing 30% of the ‘market’. If those service contracts are a blend of warranty, bronze, silver and gold, your actual reach might be 15-20% of total addressable service market (TAM).

The above example is providing you with two things:

  • A compelling reason to act
  • Three mitigating handles

Compelling reason to Act

Let’s do some role play.

Suppose you are a service executive. You have a steady service revenue stream growing at the same rate of product sales. Your new management tasks you to grow faster than product sales, you need to grow your service revenue by 20%. What is your first response? How? Why 20%? The Gap will help you evaluate the feasibility of your new business objective. The Gap can also help you include other stakeholders in reaching your objectives. Think about sales leadership and portfolio development.

Suppose you are the sales leader. You work hard to maintain and grow market share. Growing market share by 20% is, to put it mildly, challenging. That challenge will only get bigger when your CFO changes the paradigm to margin contribution. To understand the dependency between sales and service I’ll flip to point-of-view towards the buyer of your product & services. From an asset owner’s perspective between 8-12%[1] of the life cycle cost are related to the purchase of the asset. The remainder is associated with maintenance and operational cost. This insight should trigger you and your CEO/CFO to rethink where you want to create your margin. It’s less about the one-time sale & margin of a product, and more about being able to create customer lock in throughout the life cycle of that product. Long-term contracts will deliver recurring revenue and margin contribution. The Gap is the quantification of what you are missing out on compared to a life cycle approach.

Suppose you are responsible for the product & services portfolio. Today you have a mix of warranty, bronze silver and gold. Each of those offerings has a different revenue/ margin contribution. Of course, you’d like all asset owners to buy your gold contract. The size of the Gap may be an indication to what extent your current portfolio aligns with the needs of the asset owners. Once you understand that an asset owner is more interested in using a product than owning it, your current service portfolio may need an upgrade.

Three mitigating handles

To mitigate the Gap, we’ve identified three handles:

  • Installed Base Visibility
  • Attach Rate
  • Service offering

The first one, installed base visibility, builds on a variant of Peter Drucker’s quote “if you can’t measure it, you can’t manage it”. You need to know where your assets are, and in what condition to be able to sell associated services. The bigger the Gap, the bigger your motivation should be to invest in an asset life cycle database. Documenting the As-Built, As-Sold and As-Maintained. And yes, this may be more work when your organisation sells products through an indirect sales channel. The Gap may justify the investment.

The second and third handle go hand-in-hand. Once you have visibility of the installed units, you can start targeting those with your services portfolio. Important to realise, not the product specifications and characteristics are leading in the service offering, but the use-profile of that product. For the same product, wear and tear can be completely different, based on how the product is being used. This realisation emphasises the need to collect data throughout the operational life cycle of an asset. If sales says, ‘each touch point is an opportunity’, service can extend that paradigm with ‘each data point is an opportunity’.

Is it doable?

Absolutely! A target of 20% service revenue increase may sound abstract when you get it. In this blog we tried to break that task into manageable pieces. Standard service metrics will allow you to monitor installed base and attach rates. Introducing the Gap helps you to quantify your revenue growth potential. The Gap will create both the compelling reason to act and the arguments to convince other stakeholders to jointly work on this revenue growth target.

Please share your victories with us.


[1] Source: Insight… Accenture and total cost of ownership (2012)

This article is published in ServiceMax Field Service Digital on May 11th, 2021 and Field Technologies.

Maximize Virtual Round Tables – Recap

On the Maximize agenda we offered set of 12 round tables spanning a range from covid implications to asset centric business models. From technician skill profiles to commercial maturity. These topics fuelled a wide range of conversations. In this blog we’ll try to give you a taste. Want more? Have a look at the Maximize recordings here: https://www.servicemax.com/maximize/

From short trial to longer-term innovation: lessons/ practices from COVID that will persist

A little over a year ago we learnt about Covid-19. Denial, anger, bargaining, depression and acceptance. We’ve been through it all. Covid-19 drove a number of changes in the way service was delivered and consumed. Organisations quickly deployed new solutions and digital technologies to enable their workers to continue to deliver service to their customers. 

In this round table the participants shared what changes are merely short-term adjustments or disruptions to the normal and which ones are longer-term innovations that are here to stay.

No surprise employee safety, compliance and remote service are high on the list of the more permanent changes. The underlying business issues were there all along, only Covid-19 amplified and accelerated the change.

What Covid-19 has also shown us, disruption has many forms. So better prepare to be agile and resilient. As a final thought: how is your organisation going to handle the backlog of push-out work orders? How are you going to prioritise while meeting your contractual obligations?

Recommended Maximize sessions:

  • Keynote: Making your Service Business Resilient with ServiceMax
  • Business Transformation: Listen to Your Assets: The Benefits of Using Asset Data for Business Outcomes

Recommended readings:

  • Transforming Field Service When the “Field” Has Changed (March 11th, 2021)
  • The Year Ahead for Energy: 3 Paths to Success Post-Covid-19 (March 9th, 2021)
  • 8 Considerations for Your Remote Support Program (February 4th, 2021)
  • How Will AR & VR Impact the Future of Field Service Management? (December 22nd, 2021)

The technician profile: changing role, changing skillsets – where do we find them?

Assets are changing. Service work is changing. The nature of customer relationships is changing. Has the technician skillset changed to match the evolution of service taking place? 

We ask a lot of our technicians. We ask them to be our brand ambassador. They want to be a hero on site. Maybe then best ‘gift’ we can give technicians is empowerment. To give them tools allowing them to engage with the right information at their fingertips. With a right balance between autonomy for the technician and control for the manager.

Is that possible? Sure. The discussion showed plenty of examples of how the combination of state-of-the-art service execution tools and empowerment drives adoption … and thus the projected business results. Once people see transformation in action, the mindset will follow leading to an intrinsic motivation.

Recommended Maximize sessions:

  • Keynote: Building Resilient Relationships. Being a Technician during the Pandemic
  • MaxTalk: Save my Bacon – Remote Assistant in the Field

Recommended readings:

  • 2021 Predictions for Chief Service Officers (December 15th, 2020)
  • Technician Advice to CSOs: 3 Interesting Takeaways from Our Inaugural Tech Talk Event (August 25th, 2020)

Enhancing the commercial maturity of your services business

Now most service organisations have a revenue target, we found it interesting to have a conversation on commercial maturity. You seemed to agree. We had a great turn out at our round table and engaging conversations.

Why is commercial maturity so important? Because margin contribution stemming from operational excellence is not enough. Organisations feel the pressure of margin erosion and commoditisation. In parallel there is a constant drive for growth. And with more vocal customers it is adamant to constantly ride the waves commerce.

We asked the participants to self-assess their current maturity using a poll. Defining a low maturity as a predominantly product focussed organisation selling services as an afterthought. On the other end of the scale, we positioned companies where both sales and service revenue generating activities are managed in unison over the life cycle of the product/ equipment/ asset.

To make the maturity assessment tangible and actionable we’d given the participants a simple calculation exercise. Suppose you have an installed base visibility of 100% and an attach rate of 100% ‘gold’ contracts. Meaning all installed products have an associated all-inclusive service tier. How much revenue would that amount to? Do we have your attention? 

Now compare this figure with your current services revenue. The goal of this exercise is to define the ‘gap’ and to use the gap as an instrument to drive your commercial maturity journey. 

Of course, we know that not all asset owners will buy the gold tier. More likely we have a mix of warranty, part sales, installations, break-fix, field change requests, inspections/ calibrations, preventive maintenance and availability services. Each of these services has a different revenue and margin contribution. If you want to maximize your revenue, you’ll have to revisit your current services portfolio and how you present these offerings.

Recommended Maximize sessions:

  • Asset360: How to Unlock New Revenue Streams with Warranty and Contract management
  • Business Transformation: How to Protect and Increase Your Service Revenue Stream with an Eye on Servitization
  • Business Transformation: How to Revitalize Your Service Portfolio for CEx and Growth

Recommended readings:

  • The key to Sales and Service working in collaboration (January 26th, 2021)
  • 5 Ways to identify new revenue streams in Service (November 24th, 2020)
  • Upsell leakage: Everything you need to know (November 19th, 2020)
  • How to sell Customers on the value of preventive maintenance (July 9th, 2020)

The installed base’s role in lifecycle management

Peter Drucker said: “if you can’t measure it, you can’t manage it”. We could say the same thing about the installed base. If you don’t know where your product is, in what condition and how it is being used, how can you excel in service? How can you serve asset owners over the lifecycle of the product?

A survey by Accenture stipulated that over the lifecycle of industrial assets approximately 8-12% of the cost is related to the purchase of the equipment. The rest is maintenance and operating cost. These numbers should convince any OEM to step up to the plate and offer life cycle services.

What do you do when you sell a significant number of units via the indirect sales channel, via dealers and resellers? Value chain actors that may shield their installed base data. The engineering change request may come to rescue. As OEM you have a legitimate reason to reach out to the asset owners, whether it is quality related or if the change enhances the capabilities of your product.

Recommended Maximize sessions:

  • Asset360: How to Unlock New Revenue Streams with Warranty and Contract management
  • Business Transformation: How to Revitalize Your Service Portfolio for CEx and Growth

Recommended readings:

  • 3 Steps to make engineering change management easier (March 2nd, 2021)
  • How to maintain and protect your brand as an OEM (December 17th, 2020)
  • Looking for Design-for-Service? Start here (December 10th, 2020)
  • How to sell Customers on the value of preventive maintenance (July 9th, 2020)

This article is published in ServiceMax Field Service Digital on April 15th, 2021

Field Service Circle Recap: Accelerating Your Digital Transformation

Digital service transformation does not start and end with implementing innovative technologies. It starts with a vision. Service Leaders rethink how to generate new service revenue streams and ensure long-term success. And at the end, when companies find the right path, customers benefit from the new services tailored to their needs.

During our EMEA Virtual Field Service Circles in 2020, we offered inspiration, expert knowledge and practical experience to those striving for improvement and progress on their digital journey. And it seems that with the change from on-site to virtual sessions we could translate this imperative into its very own form and take the huge number of attendees, who are looking to make a difference, along for the ride.

Inspired by the findings in the Forrester research report we commissioned in 2019, we created our 2020 season of Field Service Circle events. During these sessions, we looked at the three key pillars that are accelerating the pace of digital service transformation as well as future field service strategies. This article will recap each of our four sessions.

Future-Proofing Your Workforce

Recent changes as a result of the global pandemic have drastically changed the way some technicians conduct their work; however, the role of the field technician has been evolving at an increasing pace for a number of years now. What does a happy, versatile, future-proofed workforce look like? Together with Kris Oldland, Chief Editor of Field Service News, Coen Jeukens and Sumair Dutta from our GCT team not only talked about these questions but also discussed the value of field service tools for technicians, the importance of human intelligence, and the move towards a “remote first” model for service. Watch the on-demand recording here.

Keeping Customers at the Forefront

While technology has raised customer expectations, it can also help field service providers meet those expectations. But how well do we understand the expectations of our customer base and how is the customer’s voice a driving force in the service transformation? How will customers see value in new service offerings and how can we future-proof the supply of the same? All of these questions, and more, formed the focus of this session with Rob Merkus, EMEA Service Director at Hitachi Medical Systems, and Jan van Veen, Founder & General Manager at moreMomentum, as we examined the service delivery chain from the customer perspective, the best ways to adapt to evolving customer expectations, and the business opportunities therein. Watch the on-demand recording here.

strategy & vision

Using Asset Data as a Transformation Consultant

Customers expect their assets to work, and service providers want to know where the assets are, in what condition they are, and how they are being used. The focus on digital transformation has placed companies’ attention on harnessing equipment data for insights, exploring new business models, and implementing digital technologies. Sven Gehrmann, Senior Manager of BearingPoint, Thomas Heckmann, Solution Consultant of ServiceMax and Co-Founder of the German Chapter of the Institute of Asset Management, and Coen Jeukens particularly emphasized the message that equipment will become the transformation consultant of the future driving future business value. Watch the on-demand recording here.

3 pillars of digital transformation are your workforce, your customers, and you assets

Field Service Strategies for the Future

Field service management is evolving and adapting to the “new normal” that we must all embrace as a result of the pandemic. According to an IDC survey spotlight by analyst Aly Pinder, Jr., “The service experience can be THE differentiator for manufacturers in a time shrinking margins and heightened customer expectations.”1

Additionally, Susan Tonkin, who leads Analyst Relations at ServiceMax, presented some of the predictions recently published by Gartner, such as “By 2025, proactive (outbound) customer engagement interactions will outnumber reactive (inbound) customer engagement interactions.”2

Together with Professor Shaun West of the University Lucerne, Susan Tonkin and Coen Jeukens discussed Forrester’s three pillars of digital transformation and ServiceMax’s predictions for 2021 based on our CSO Summit series. Among various points, Shaun highlighted that the so-called “smart services” that are data-driven and geared to individual customer needs are gaining importance. Watch the on-demand recording here.

What’s Next?

Digital Service Transformation is no longer a choice but an imperative. Having visibility and control on Assets, Workforce and Customers allows service providers to drive excellence and growth. Technology plays a decisive role in this journey. It has profoundly changed the business landscape and its impact will continue growing as long as more businesses continue adopting technologies that add value to customers’ lives.

The EMEA Field Service Circles presented a fantastic opportunity to stay connected with ServiceMax and industry peers remotely as we all work to keep the world running and understand how to respond to field service changes.

Take the next opportunity to accelerate your digital transformation with Maximize!Click here to register for Maximize 2021, ServiceMax’s Global Field Service Conference on March 16-18, to learn what you can do today to support your business goals and how you can prepare your service team for the challenges of the future.

1. Source: IDC, COVID-19 IMPACT ON IT SPENDING, 09/2020)
2. Source: Gartner, Predicts 2021: CRM Customer Service and Support, 1 December 2020

This article is published in ServiceMax Field Service Digital on February 16th, 2021

Identifying new revenue streams in Service

It is no big secret that service revenue streams are profitable. Thus, it is to be expected that many CFO’s are the driving force behind your organisations’ service revenue growth ambitions. Especially when margins on product sales are dwindling. And indeed, we see the majority of today’s CSO’s having a revenue target. This is where the real transformation starts.

Having a cost-centre heritage practically all CSO’s know how to drive cost reductions in the service delivery process. Ask those same CSO’s if they know how to grow revenue, and the answers are less clear. Read on for the missing insights.

A small personal anecdote. In 2012 I was responsible for selling service contracts for a division of a € 60 billion family-run German company. Because my targets were revenue based, my role was moved from the service domain to the sales domain. The CRO asked me how I would achieve my goals and what marketing budget I needed. I said I would first build the delivery capability and then go for the marketing budget. How naive I was.

Voice of the Customer

How could I know what capabilities to build without understanding what customers really value? Without ever having put a lot of thought to my current services portfolio my service revenue stream was more a bookkeeping metric than a conscious business driver. Looking at my website under the services heading I saw the usual suspects; installation services, periodic maintenance, spare part sales and a helpdesk for break-fix scenarios. Remembering the words of the CRO; how did I market these offerings? Well, beyond the website, I didn’t. It made me aware that I needed the voice of the customer.

Customers expect assets to work

And when I asked, the answer was really simple; customers expect their assets to work. They want to maximise uptime while at the same time minimising operating cost.

The Preventive Maintenance story

May I make a guess? Preventive maintenance is a significant portion of your service revenue stream. But what if your customer starts questioning your rationale of ‘preventing’ and how those activities link to the achieved uptime? What if the procurement department of your customer pressures you to reduce the maintenance cost?

In our previous blog on how to sell customers on the value of preventive maintenance we have shown that value recognition of service delivery is moving from the actual execution to the insights you can provide. Sure, the service work needs to be done, but beyond fixing the asset, you have to ‘fix’ the customer. So, if you perform a periodic maintenance, try to shift your focus to the reporting and the interpretation/ communication of what the outcome means to the customer.

A customer may respond with:

  • Did you find any anomalies during PM and what impact do those have?
  • Do I need to reserve any additional budget to keep the asset going?
  • How can I improve the performance of the asset?

From fixing what breaks to knowing what works

Beyond reactive services

Considering revenue streams based on reactive type services are in jeopardy, the way forward is offering services that focus on the output and outcome of the asset. This implies that you have to change your paradigm from a product focus to a customer focus. At the core of your service delivery is not the product, but how your customer is using it. It makes a big difference if the same product is used intermittently at a 25% utilisation versus a 24/7 usage at 99.x%.

The key to selling uptime and performance-based services, is your understanding of the ‘cost of downtime’ of your product in the context of its use. Thus, we’re back at the voice of the customer.

I love penalty clauses

A ‘great’ way to engage in a value conversation with your customer is the topic of penalty clauses. I love them! Not because I, and my CFO, like to include the penalty liabilities into a service contract, but because penalties are a surrogate for something that is important to your customer. Try to discover the ‘why’ behind a penalty clause and focus on the mitigation of that reason. You may discover new types of services you can sell. 

My guess, it’s all about availability of the machine. Apply more curiosity and your customer will tell you when that availability matters … and when not. Even a 99.x% utilisation will have ‘black out’ windows allowing you to perform the necessary service activities without the stress over-dimensioning your service delivery organisation.

Sell first, then build delivery capability

Going back to my CRO. On a continuum of potential services, I could offer a full range from reactive to pro-active, from product to usage-based services. In the end, the determining factor is not me, the seller of the services. It’s all about the buyer of services. My CRO ‘cured’ my naivety. I first listen to my customer and sell what he/ she wants. Then, if I have a state-of-the-art and flexible service execution platform then I do not need to worry about the service delivery capability being able to catch up.

This article is published in ServiceMax Field Service Digital on November 24th, 2020

Finding Revenue Leakage in your Service Business – part 2

Do you know what your maximum service revenue potential could be based on the product units your organisation sells? Is your current service revenue less than this maximum? And, do you have a process to upsell service contracts into your existing installed base? One or more puzzled looks, chances are big you are suffering from Upsell-leakage. 

In the previous episode we have defined two types of leakage; Contract and Non-Contract leakage. In this episode we’ll define Upsell-leakage. Most likely upsell leakage will be twice as big as the other two combined.

Upsell leakage

As service organisation you’d like all your customers to buy your premium service. Some customers will buy ‘gold’ service level for their installed base, others will be happy with ‘basic’ service. It all depends on the use case of your customer and their propensity to value the services you offer. As use cases tend to change over time, you may want to consider setting up an upselling program using the touch points from your service delivery. 

If you don’t ask, you don’t give them the opportunity to say yes

Not having such a programme deprives you of revenue potential; being the delta between your current service revenue and ’gold’ service level.

Defining the upsell service revenue potential

To quantify upsell leakage we can use a mechanism known to Sales as TAM (Total Addressable Market). Suppose you sold 1,000 units at $10,000 each. Suppose a ‘gold’ service contract has an annual selling price of 12% of the unit selling price. This would put your service-TAM at $1,200,000 per annum.

Imagine your service department has 600 of those 1,000 units on their radar screen. The rest is sold via an indirect sales channel and/ or lost-out-of-sight. This gives an installed base visibility of 60%. Let’s assume those 600 units generate a service revenue of $400,000, split across:

  • 10% of units are in (OEM) warranty and don’t generate revenue (yet)
  • 50% of units have a bronze, silver or gold contract generating $240,000
  • 40% of units don’t have a contract and generate $160,000 in Time & Material (T&M)

With the above figures you currently reap 33% of your service-TAM and you have an upsell potential of $800,000. Monitoring this upsell leakage metric should give you the incentive to put a revenue generation program in place.

Metrics driving upsell leakage

In the numeric example we’ve touched on three metrics that impact and drive upsell leakage.

  • Installed base visibility: it all begins with installed base visibility. Units not on your radar screen will not contribute to your service revenue! This is easier to manage for units sold via your organisation’s direct sales channel, though it does require an effort to manage the life cycle from as-sold to as-maintained. For units sold via the indirect sales channel you’ll have to exert extra effort to get access point-of-sale data, maybe even ‘buying’ the data.
  • Attach rates: both warranty and contracts are attached to the unit, thus driving attach rates. Attach rates are ‘boolean’, they say something about having an attached contract, not about the amount of revenue you get through that contract. Attach rates start at the installation/ commissioning date of a unit. Either Sales makes the attached-sale at point-of-sale of the unit or the Service department drives the attaching post-point-of-sale. Driving metric for Service is to maintain a continuum of attachment throughout the life cycle of the unit. 
  • Service revenue contribution: Within the subset of attached contracts you’d like to have as much revenue contribution as possible, ‘gold’ service being the holy grail. Per service contract you could have any of the following revenue contributions:
    • OEM Warranty: 0% of Service-TAM
    • Enhanced Warranty: 33% of Service-TAM (only the on-top-of OEM warranty piece)
    • Extended Warranty or Basic service: 67% of Service-TAM
    • Gold: 100% of Service-TAM

In terms of merchandise, you can’t force anyone to buy something

Remedying upsell leakage

The overarching paradigm to growing service revenue is twofold: increasing your installed base visibility and making sure you have attached offerings to those units. 

Getting visibility on units sold via the indirect channel is slightly more complicated, but once you quantify the associated service-TAM with those units, you may have the ‘funding’ to ‘buy’ the data. This may even lead to revenue sharing models with your channel partners.

The last piece of the puzzle is using the visibility of the upsell leakage gap whenever you have a touch point with your customer. Note that the original (service) contract has been drafted many months ago by people whom are further away from the business, who could not 100% envision the service reality of today. You thus may end up in an entitlement conversation where the customer has an urgent requirement whereas the contract ‘only’ covers for the ‘basics’. The delta is an upsell opportunity. Either resulting in an upgrade of the service contract or maybe only upgrading an incidental work order. In case the latter happens more often, you have the data points to convince the customer for the former.

Now, understanding that upsell leakage is potentially twice as big as contract and non-contract leakage together, you may have found your compelling reason to start another revenue growth project.

This article is published in ServiceMax Field Service Digital on November 19th, 2020 and Field Service News on Jun1 1st, 2021

Finding Revenue Leakage in your Service Business – part 1

Have you ever had to Credit or Discount an invoice? If the answer is ‘yes’ then you have leakage, if the answer is ‘no’ then you definitely have leakage.

How do you respond to the Aberdeen finding that best-in-class companies have a whopping 14% warranty & contract leakage? Denial, absurd, overstated, or … wait-a-minute, maybe I’m not looking at the right KPIs to detect leakage. Once you acknowledge leakage exists in your organisation, wouldn’t you go all the way to manage leakage out of your business, knowing it has a direct impact on your bottom line?

Defining leakage

What is service leakage? In the simplest terminology: you are losing money. And the bad news is that it often happens without you knowing or realising it.

We can distinguish two types of service leakage:

  1. Non-Contract leakage : the periods in the operational life cycle of an asset not covered by warranty and/or a service contract (sometimes this is also called T&M-leakage because service outside a contract classifies as T&M).
  2. Contract leakage: an asset is covered by warranty and/ or a service contract but in your service delivery you provide more and/or a higher level of service than the customer is entitled to. 

Contract leakage typically occurs when service organisations do not know and/or manage expiration dates of warranty and contracts. Non-contract leakage typically occurs when the entitlement process is fragmented and/ or when the information is not accessible to all involved service actors.

Let’s mention a couple of common scenarios:

  • A customer claims a defect within the warranty period. You correctly entitle the job as ‘warranty’. On site the technician detects ‘customer induced damage’. The technician performs the repair anyhow and there is no charge to the customer.
  • A customer is entitled to next day service but presses you to fix the machine today without paying an additional fee. Because your technicians are not busy today, you give in to the request.
  • A customer makes a service request assuming the current contract is still active. Upon entitlement check you detect it has expired three months ago. The customer agrees to renew the contract per current date. You incur 3 months loss in contract revenue.
  • A customer has multiple machines of the same model. Only one of them is covered by a contract. The single contract line is used to entitle work on all of them because the customer always uses the same serial number.

Service Leaks are not the problem; they are the symptom. They reveal a disconnect between process design and actual behaviour. Denial of leakage increases the disconnect.

Impact of leakage

One of the unfortunate things in business is that the cost always hits you – now, if you are so good at capturing cost why do you allow revenue to slip through your fingers? How do you think your shareholders would enjoy hearing that you worked on a customer’s asset and neglected to bill them? 

Another way to look at the impact of leakage is to establish how much extra revenue would need to found above and beyond what you are already billing for. Let me paint a picture for you, as we have established you capture all of your costs so any leakage (missed revenue) that you capture will have a 100% positive impact to your bottom line – every dollar billed will be a full dollar of equivalent gross margin. So, let’s say you were running at 20% margin as a service organisation and you allowed $100,000 to leak through your service organisation, now a service org would need to go and find $500,000 of brand spanking new business to offset this $100,000 leakage just to break even. How hard is it for a business to find $500,000 of extra revenue with the same resources? 

Actually, quite easy – set your system up to minimise the risk of leakage….

On top of the cost, revenue and margin contribution impacts, customer expectation is a big one. Leakage has a very large behavioural component. If a customer is used to getting service for free, it becomes very difficult to start charging for it. If a customer ‘discovers’ you can’t manage your entitlements correctly, this may lead to ‘unwanted’ service calls.

A similar behavioural impact can be expected on the technician’s end. A technician chose his job because he/she wants to fix things and be a hero on site. A technician did not select the job to do admin and become a contract-referee. Thus, if you do not empower your technicians with the right tools and information, do not expect any cost/revenue sensitivity, they will go for CSAT and please the customer.

Finding leakage

Do you find leakage or is it a matter of ‘capturing’ it? You are delivering all of the services that create the opportunity for leakage, so you already know where it is, you just need the correct tools to capture it, Oh and by the way,  they are never humans and excel… You need a robust process and a software solution to support that process and remove ‘chance’ from the equation. 

Detecting, quantifying and finding the origin of leakage in your organisation is a process like remedying a leaky roof. You’ll need adjacent ‘instruments’ to find the source.

Remedying leakage

The first step towards remedying leakage is accepting its existence. Once you have made leakage visible, you can start actioning it. And in general those actions fall into three categories:

  1. Stop delivering free service; this has a direct cost reduction benefit.
  2. Continue delivering ‘free’ service and start charging for it; this will increase both your revenue and your margin; the additional margin is 100% as we have shown you have already incurred the cost.
  3. Continue delivering ‘free’ service and use it as collateral for something else of value; this benefit is harder to manage, but we can argue it is good for CSAT and can be used during contract renewal to counter cost & rate reduction arguments from your customer.

This article is published in ServiceMax Field Service Digital on November 10th, 2020

Demand generation: A Groundhog day experience

The profit contribution of services compared to product profits has been the subject of many workshops over the past decade. Still, achieving a true shift in sales focus is a “Groundhog day” experience writes Coen Jeukens, Service Contract Manager, Bosch Security Systems

At the Copperberg April 2016 UK Field Service Summit service industry experts had their own groundhog day experience when discussing the “Demand generation” topic: what can the service manager do to go beyond the daily break-fix mode towards cross and upselling.

In five consecutive rounds the same discussion was reiterated varying the contributing industry experts. The individual rounds revolved around common convictions like:

  • Should we dilute customer trust created by service engineers with potential alienation when stepping into a commercial role;
  • Service is about helping customers, not selling to customers;
  • Service and sales have different counter parts and decision making units;
  • What is a meaningful incentive for service people to spot sales revenue and vice versa;
  • Service and sales people have different DNA.

When looking at the discussions at an aggregate level, demand generation is possible when taking the following recommendations to heart:

  • Use service engineer more as a brand ambassador than sales-lite;
  • Empower service engineer to become a hero on site;
  • Incentivise customer feedback instead of monetizing prospects/ leads;
  • Feed customer feedback into marketing function;
  • Creation of a “product” development function for services;
  • As service manager, do not boast yourself as being a profit centre, but emphasise your contributing role in co-creation with sales.

The service engineer as brand ambassador

Comparing the amount of customer touch points and level of client trust, service engineers do have an edge over sales representatives. Though it sounds tempting to dual use service engineers as sales-lite, don’t do it.

Engineers gain their stature through technical competence and stamina to prolong the operational performance of a piece of equipment. As such the engineer is the perfect ambassador for brand loyalty.

Engineers gain their stature through technical competence and stamina to prolong the operational performance of a piece of equipment. As such the engineer is the perfect ambassador for brand loyalty.

In analogy with politics, the ambassador is an important player in a multi-faceted sales game: the ambassador provides intelligence, sales translates intel into leads and deals, while fencing the ambassador’s neutrality.

When contemplating to add a sales role to service engineers, do balance the risk and reward. Bear in mind that from a decision-making unit (DMU) perspective the service engineers’ counterpart is the end user and not the asset owner/ buyer. At best the end user will decide on OPEX matters.

When it comes to CAPEX the end users’ role diminishes to that of influencer.

Hero on site

Other reasons not to mingle sales and service objectives are the differences in DNA and aspirations. A sales representative strives to become trusted business advisor in order to generate long-term revenues.

A service engineer by default has a long-term relationship, a high level of trust and an advisory role. The service engineer wants to be the hero on site, he wants to be able to help.

As a hero on site and brand ambassador, the service engineer can use his stature to open doors and generate leads on two levels:

  • OPEX leads: consumables and wear & tear components
  • CAPEX leads: generate demand for new offerings

Empowerment is the key on both levels:

  • OPEX leads: It is easy for a service engineer to convince an end- user to buy small maintenance related components. It makes him a hero if he can supply and install them right away. Any “delay” in conversion of lead into sales not only deteriorates the sales momentum, it also affects the hero status of the engineer.
  • CAPEX leads: In his default mode, the service engineer will try to fix the existing equipment compared to suggesting a replacement or new buy. When hinting towards the latter, the service engineer puts his hero status at risk because the conversion of the lead into a sale falls outside his control. Nothing is more deadly for a hero than raising an expectation he can’t deliver.

Incentivise customer feedback

Frequent customer touch points and a high level of trust put your service engineer in a unique position to be the eyes and ears of your organisation. Capitalising on that position requires a multi-tired approach.

In analogy with the concepts of “big data”, capturing the sensory output of the service engineer is step one. The interpretation of that data into a lead is step two. The conversion into a sale is step three.

When the collection of data is driven by an intended use for sales, you may not only miss out on many subtleties of customer feedback, but also bias the observation with short-term gains.

Apart from asking your service engineer to collect specific data that is not in his DNA, you may also risk the neutrality of your ambassador/ hero.Ideally you may incentivise your service engineers to collect customer intelligence and feedback regardless of its conversion into sales.

Feed marketing

Information collected by service engineers is a valuable addition to the data input of your marketing function. Once in your marketing process it augments existing data and will result in better quality leads.

Better leads are more prone to be picked up by sales. Follow up by sales will make the service engineer feel taken seriously.

Not only will this boast his hero on site stature, he will also use his trust with the customer to make him decide positively on the sale.

Knowing service engineers have access to high quality and individual customer intelligence, using that information may also inspire you to rethink the workings of marketing.

Markets are less homogeneous than a decade ago. New technologies and the growing importance of customer experience will even further individualise customer behaviour.

Services development function

Acknowledging declining profit margins and fierce competition on products, transitioning to a more customer/ services centric earnings model is the logical way to go. The customer intelligence and feedback from your ambassadors and heroes will become vital in understanding his needs.

Where your products development department can tell you everything about your products and their roadmap, any service engineer can tell you how your customers use those products and how customers experience their use.

The combination of product and its use open up new sales opportunities. As use is the dominant factor, the appearance of the offering is customer specific.

Setting up and embedding a services development function in your organisation will enable you to add service revenue streams in an efficient manner.

Your service engineers will be the prime suppliers of input to your service development function. Similarly to proving input to your marketing function, the engineer and customer will feel appreciated when they receive feedback that their information is taken seriously.

Service as contributing centre

In achieving demand generation, adding sales roles and goals to the service department may sound as a logical thing to do. The profit contribution promise may even tempt you further.

Apart from the considerations in the previous paragraphs, beware that the creation of a secondary sales channel does invoke competition between the sales and service department. A competition that more likely will emphasise differences and prejudice than seeking the common ground.

Success lies in positioning your service department as a contributing centre. Let sales be in the lead. Use the traction of the sales department to get organisational and CEO buy in.

Make sales the internal hero by feeding them with high quality service engineer data. Empower your service engineer and make him the external hero.

As finishing touch, invest in a service marketing and services development function. Sales and service seek the commonality and acknowledge each other’s strength.

Published in Field Service News issue #13 (July/August 2016 and website