Recession Yes or No? 3 Reasons Not to Ignore your Aftermarket Services
It’s impossible to know what the future will hold for the manufacturing industry. The last few years have demonstrated how quickly things can change and the impact of disruptions throughout the industry. There has recently been noise about a possible recession, but no one can say for sure. So whether there will be or not, it’s critical that OEMs are ready to deal with whatever lies ahead.
One of the best ways to do that is through increased focus on aftermarket sales and service. This often underinvested area provides a lifeline that helps fund business growth in good times and bad.
Here are three reasons why you don’t want to ignore your aftermarket services in 2023:
1: Customers Will Maintain Production Levels With Lower Overall Spending
One of the most overt impacts of a recession on OEMs is that customers are reserving fewer dollars for capital expenditures. Companies are increasingly looking for ways to save, and cutting back on spending is a major one. That means purchases of expensive new equipment will decrease. But while there’s less demand for new equipment and fewer dollars to spend, production is expected to remain the same.
Identifying aftermarket opportunities is a great way to close this gap. Since new equipment isn’t purchased, the existing equipment will need to be diligently maintained to keep running at its full potential. In this scenario, owners and operators may be pushing equipment past its planned useful life, and therefore may need support on upgrades or certain maintenance activities that will help to extend the life. Proactively identifying customers who fall under this situation will be beneficial. Offering them service and parts packages to keep their equipment running can be a great source of revenue. Sell the service, and you will sell the parts.
2: Customers Will Demand Fast and Transparent Information About Parts
Financial constraints mean that there’s an emphasis placed on efficiency and the overall buyer experience. Because there’s less money to spend, buyers can be pickier about where they choose to make purchases. Creating a transparent and efficient purchasing process is critical to ensure buyers return to you for all their equipment support needs.
Customers will expect easy access to product availability, pricing, order status, tracking information, re-orders, and product documentation. Providing a digital self-service solution for customers to log into whenever they need it, wherever they are, makes all of this possible. In today’s competitive market, If you don’t provide the parts information, someone else will.
3: Aftermarket Parts Provide High-Profit Margins
Aftermarket sales are highly profitable. On average, they have an operating margin of 2.5 times higher than the sale of new equipment. Even in an economic downturn, aftermarket parts will be in demand. With that in mind ask your aftermarket team the following questions:
Are we easy to do business with?
If not, what 3 things can we prioritize and fix right now?
Where are our biggest opportunities? (Across customers, installed base, and parts)
Do we have the right inventory levels for critical parts and consumables?
Do we need to put any strategic plans in place with our suppliers?
Are there any service packages, kits, or upgrades we should be promoting?
Do we have enough service technicians to support our strategy?
Do we have the right logistics providers in place to deliver under urgent customer demands?
As we discussed earlier, if new equipment isn’t being purchased, parts will need to be. Maximizing aftermarket sales is a great way to keep a continuous revenue stream at higher margin levels.
Don’t Wait Until It’s Too Late
Don’t delay. Even in the best economic environment, investing in parts and service is a great way to grow your business. When executed properly, with a clear focus on the customer, aftermarket sales provide repeat orders at higher profit margins, even when customers restrict spending. The earlier you act, the more resilient your company will be to handle whatever may come next.
If you’re looking for help with your aftermarket strategy, you can contact one of our experienced experts. Or you can get a firsthand look at how powerful our solution, Equip360, can be for your aftermarket team by scheduling a free demo.