Chris Aiello Taking a page from the video game industry to generate reoccurring revenue
If you play video games or have children that play modern-day video games, without even thinking about it, you are familiar with the video game industry’s revenue model. You are especially familiar if you are the one footing the bill for your or your children’s video game play.
The old-fashioned business model for gaming has been the console model. Video game console manufacturers sell their gaming consoles usually at cost or very low margin while making money by selling high-priced games. The rise of online gaming, especially as high-speed internet has become an everyday commodity in households, has further diversified the revenue models for video game companies.
One of these revenue streams is the subscription model, where a game requires continuous payments to play the game. Another revenue stream is what is called microtransactions, where there are features or aspects of a game that the player can purchase to upgrade gameplay or attain digital goods or premium features of the game.
Again, if you are into gaming or have children into gaming, you are probably all too familiar with these microtransactions if it is your credit card being billed. While companies might not necessarily be making high margins by selling consoles, or even if they provide some free-to-play games, these revenue streams outlined above continue to remain lucrative.
Now you are probably wondering what that has to do with the material handling industry and lift trucks. I wanted to draw the parallels between the revenue streams in the video game industry to the revenue streams within a traditional lift truck dealership. Think of the lift truck as being the gaming console for the purposes of this article. The sale of a new lift truck can lead to years of service maintenance and replacement parts business for the dealer.
As defined by MHEDA, the material handling aftermarket is the add-on revenue source from industrial truck equipment sales; parts, after-sales service, and rental fleet operations. So compare the subscription and microtransaction revenue models I mentioned at the beginning of this article for the gaming industry to the lift truck dealer’s subscription and microtransactions.
They can include but are not limited to field service repair, preventive and/or planned maintenance, annual safety inspections, service shop work, sales of high mortality rate/high-wear parts and accessories, component replacements, rebuilds or remanufactured parts, and service and maintenance contracts.
According to the MHEDA data, a typical lift truck dealership revenue mix consists of the following:
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New Equipment Sales: 29.2%
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Used Equipment Sales: 7.9%
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Parts: 18.4%
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Service: 20.4%
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Rental Billings: 14.4%
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Other Revenue (not listed above): 9.7%
According to the same MHEDA data, the gross margin from new equipment sales for a typical dealership is 8.7% whereas the gross margin for parts sales is 34.9%, and the gross margin for service is 62.6%
Tight margins on the new equipment, similar to the console in the video game industry model I described earlier in the article. As the MHEDA data shows, the sale of parts and services is critical to the profitability of the dealership. This is especially true with the current climate of our industry. Extended lead times from new equipment manufacturers have led to the life of the older equipment within the market being extended past its normal operating life. This has led to an increase in parts and services needed to maintain the equipment that would normally be replaced during the normal equipment life cycles of your end-customer.
While new equipment manufacturers and lift truck dealers are aware of the importance of aftermarket/after-sale parts and services as shown in the data above, many dealers sometimes struggle to differentiate the role of an equipment salesperson and the role of a customer service sales rep.
Too often I see these roles rolled up into one function, where I believe these roles should always be separate functions and separate salespersons. Where an equipment salesperson’s objectives are the targeting and identifying of new equipment opportunities, along with quoting and selling of new/used equipment, if they are also tasked with providing aftermarket parts and service support that could lead to not having enough focus on one function over the other.
I believe having dedicated customer service sales reps will allow your dealership to provide focused and professional aftermarket parts support, along with dedication to targeting and obtaining service agreements and the upselling of service repair quotes.
Well-defined customer service sales rep function includes but is not limited to targeting accounts to develop and ensure aftermarket sales, ensure the growth of a dealer’s existing service accounts, and develop new and maintain existing rental equipment customers.
This dedicated function aligns with the dealer’s workflow to ensure a steady stream of service, rental, and parts business while working cross-functionally with said departments within the dealership. Having this dedicated customer service sales rep function allows the for the new/used equipment sales rep to focus on the functions of selling equipment.
In addition, as with the sale of new/used equipment to your end-customer leading to service maintenance and parts sales for your dealership, you could also see how targeting new customers through a dedicated customer service sales rep can also lead to the future sale of new/used equipment to those end-customers as well.
Combining this with a great customer experience as I discussed in last month’s article, will lead to the continued growth of these revenue streams for your dealership.
About the Author:
Chris Aiello is the Business Development Manager at TVH Parts Co. He has been in the equipment business for 16-plus years as a service manager, quality assurance manager, and business development manager. Chris now manages a national outside sales team selling replacement parts and accessories in various equipment markets such as material handling, equipment rental, and construction/earthmoving dealerships.
