Product Support Financial Value Drivers. 1/10 – Number of Products Employed by End-Users.

Sep 23
2012

This post is the first of ten entries that will discuss product support financial drivers for solutions supplied by a commercial or military focused capital good Product Support Enterprise [PSE]. The 10 topics that will be discussed are the following:

  1. # of products employed by end-users
  2. End-user product utilization rate
  3. Product failure
  4. Environment in which end users engage the product
  5. Preventive maintenance processes employed
  6. Volatility of product technology
  7. Regulatory requirements
  8. Chronological age of the product installed base
  9. Life cycle stage of the product
  10. Manufacturer’s warranty coverage

The first financial value driver – the number of products that are in the hands of the end-user – is THE biggest driver of all. Put simply, the more products delivered to end-users, the more Product Support required. It is always surprising to me that OEMs often do not know the quantity of their products that are in the hands of end-users. Almost all OEMs are focused upon production, but few are focused upon Product Support solutions.

number of products employed is the most important part of a product support enterprise

Working recently with one construction equipment OEM, I sat down with their leadership to discuss areas of revenue/profit opportunities in Product Support. Leadership was gloating that Product Support revenue had been increasing at 15%/year for the last 4 years. I asked them how much was their installed base changing for their products, but they couldn’t answer my question. So, I asked them to give me their warranty files and I did a quick and dirty analysis and I found that their installed base was growing at a 25%/year rate. When I plotted the results and told them that they had foregone 40% of the potential Product Support revenue, they were crushed…but I got them to be angry at themselves for not seeing all the money that were leaving on the table, and the OEM became much more proactive in assuring that they got “their fair share” of revenues generated from solutions delivered by a PSE.

To give some OEMs slack, they often employ authorized distributors to sell their products directly or indirectly to end-user; the OEMs don’t know when their products are actually sold and to whom.

Lesson learned: OEMs must know the current and future size of their installed base in order to develop a Product Support life cycle financial plan…and as a result of not knowing the size of their installed product based, especially for out-of-production product lines, the typical OEM captures only an estimated 15% of the value of all the solutions supplied by a PSE.

The next product support financial value driver entry coming in a few days.

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