Article at a glance:

How to make after-sales services pay off

For durable-goods manufacturers, service contracts are an increasingly important revenue stream, since they offer high margins and can account for 30 percent or more of income. But these plans are hard to price because costs can vary widely. While many companies are squandering this potential profit by offering poorly designed service plans, a few of them are capturing tremendous value by taking a fact-based approach to pricing services.

The take-away

By carefully segmenting customers according to service needs and developing tools to track costs, some manufacturers have boosted their operating margins for services by three to nine percentage points, typically within a year.