Why Service Revenues and Profits Languish

A paradigm shift is underway in the revenue and operational models that drive hardware, software, healthcare, and life sciences companies.

Until recently, innovation and the introduction of new products were the prevailing engines for growth. Now market maturity and consolidation require that many companies generate more of their revenue and earnings growth from service: maintenance, support, and subscription agreements.

But most companies do not maximize service revenue performance, because it operates so differently from their core business: product sales. The company's existing investments in employees, sales processes, and information systems were made—and are optimized and supported with technology—to achieve maximum revenue performance in the product business.

Few companies have steered comparable investments into growing service revenues and margins. But under-investment in the service revenue side of the business creates up to four major sales challenges that cause sub-optimal renewal rates and losses of up to 40 percentage points in service revenue. This revenue attrition is particularly noticeable in maintenance, support, and subscription agreement renewals.