Harvesting the Break-Fix Annuity

Product Strategy

High-tech capital equipment requires care and feeding to keep running.  When it breaks down, it requires fixing.  This cycle of breaking and fixing is what creates the break-fix annuity for equipment suppliers.

It’s not unusual for capital equipment companies to produce 30% or more of total revenue and more than 50% of profits from their installed base.

It’s King C. Gillette’s razors and razor blades, only a bit more complex.

Why Your Customers Hate It

The break-fix annuity is what your customers pay you to keep the system running the way it was originally intended.

Your customers’ view is that they are paying you for your failures, and they don’t like it.  As a result they are highly motivated to reduce or avoid break-fix costs.

They will:

  • Seek second source parts suppliers
  • Refurbish parts instead of replace them
  • Create their own parts
  • Skip preventative maintenance
  • Service their own equipment

These actions by your customers undermine your quest for aftermarket profits.

To combat these actions, you need to understand that this is a service business.  As in just about any service business, your keys to success are defect free service delivery and an exceptional service experience.

Defect Free Service is a Must

When your customers turn to you for parts and service they expect perfection.

In capital equipment, your customer is depending on you to keep their manufacturing lines running. Any failure to deliver defect free service can cost them millions.

Unfortunately, there are a lot of ways you can fail, including:

  • Defective parts
  • Wrong parts
  • Parts out of stock
  • Shipping damage
  • Parts arriving late
  • Service engineer errors
  • Slow help line response
  • Inaccurate invoicing

Any departure from defect free service gives your customers a reason to seek lower cost alternatives.

So the first step to developing a successful break-fix business is to implement the processes and infrastructure that ensure defects don’t happen.

This includes:

  • Closed loop quality assurance to ensure defect free parts.
  • Extending quality assurance to include ordering and shipping processes.
  • Closed loop parts logistics to ensure the right parts are in the right place at the right time.
  • Robust service engineer training and certification to ensure maintenance and repair procedures are performed quickly and correctly.
  • Effective call center infrastructure with clear escalation procedures to ensure timely response to customer support requests.

Be Extraordinary to Keep Customers

Unless you want your customers to always be tempted by low cost alternatives, you’re going to need to make the service experience extraordinary.

This may be hard to get your mind around. After all, it’s a big enough challenge just keeping complex capital equipment running; never mind making the service experience exceptional.  There are things you can do, however.

Such as:

  • Train technical support to send customers regular updates on open issues, even when there’s no meaningful progress to report.  Customer’s like to know that you haven’t forgotten them.
  • Develop and send a regular newsletter to all your system users with best practices and product updates.
  • Include with every service call a complimentary system audit.  Not only will your customer appreciate this free system check-out, but you may also generate some follow on revenue.
  • Sponsor a users’ group where users can get together and trade best known methods.
  • Create automatic replenishment and stocking services for consumable parts.
  • If a service requires parts to be returned, provide return packaging with pre-paid shipping.
  • Pre-package maintenance kits including pre-sorted hardware and procedures.

Every system you put into the field can produce an annuity of break-fix revenue and profit. The reward can be substantial to those who excel at ensuring defect free service and an exceptional service experience.