There are at least 8 different revenue streams in industrial sales, that you can explore in your own sales:
- Hardware sales, meaning your core product.
- Co-engineering, or co-development of customers products or systems.
- Prototype deliveries are certainly something you can charge.
- Change requests shall be invoiced to your customer, but is sometimes forgotten.
- Add-ons, like additional sensors or pumps, shall be charged, of course.
- Training is sometimes forgotten but a great source of income to your business.
- Spare parts can be a way to earn higher margins than initial sales.
- Service revenue is a growing source of income.
Most industrial companies focus on hardware sales, i.e. selling their main product. For good reasons since its usually the main revenue stream.
However, many successful companies use the initial hardware sale as an entry point to gain higher margins from additional sales. Customers usually focus on the main product and put less attention on training, change requests, add-ons, etc.
Here are the 8 different revenue streams in industrial sales that also you can create:
Your hardware product is your main revenue
Clearly, to most companies, the product they’ve designed and manufactured represent their main revenue. This is how you gain new customers and usually this is your main source of revenue.
However, competition is often tense with thin margins as a common challenge. Also, lead times can be long to acquire new customers, true acquisition cost can therefor be quite substantial.
Co-engineering and prototype revenue streams in industrial sales
It’s becoming increasingly popular amongst large OEM to outsource not only production but also Tier-2 and Tier-3 system designs. This is definitely a chance not only to have an advantage towards the competition, but also to make extra revenues. Your engineering team work closely with your OEM customers engineering team.
If you make customer specific solutions, you often come across requests to supply a prototype. It’s common to charge for the prototype delivery if your design is part of your customers’ product development.
Having said this, R&D development is a less common engineering phase to invoice, often regarded as your own product development.
Change requests and add-ons are important revenue streams in industrial sales
Customer change requests are very common and shall be an additional revenue stream in industrial sales. Many company’s have the intention to bill for change request but sometimes lack the ability to record and bill hours spent on change requests.
The best company’s keep track on change request and invoice these changes in conjunction with milestone invoicing. The best company’s also make provisions for healthy margins on change request engineering and supply.
Add-ons is a similar source of additional revenue streams in industrial sales. It’s not engineering change requests but rather request for additional components. An expanded bill of material.
Add-on requests shall definitely be invoiced to your customer. What great company’s do however is to allow for higher margins for the extra work that add-on request constitute.
Training can be an important revenue stream in industrial sales
Commonly hardware sales are prioritized by most industrial company’s. Emphasis is on what revenue can be earned from X number of units sold. Training is often overseen while this can actually be an important revenue stream in industrial sales.
Most customers appreciate training or extensive instructions. They too emphasize the product or hardware they buy, and training can therefore be a great additional source of income.
Training can either be on site, billed by event, number of days or number of participants. Training can also be made online billed by number of licenses or number of weeks availability.
Sometimes documentation including training manuals and those can of course by billed as well. It’s a common sales practice to make training manuals on option to the core sales.
Spare parts are a challenging sale for industrials
Spare parts can definitely be an additional revenue stream in industrial sales. Beware however that cost to produce 5 units is much higher than the cost to produce 50 units. Hence spart parts needs to be priced much higher per unit than the initial sales.
A good practice is also to add a provision for a minimum spare part quantity regardless how many spare part units that are needed. You do not want to price spare parts to cheap, leading to decreasing margins rather than increased margins.
Unlike co-engineering, prototypes, change requests and add-on sales, spart parts are a complexed business proposition. It may seem simply but neither is your sourcing nor your operation set up for that odd quantity of hardware.
Spart parts can be an additional revenue stream in industrial sales, but its complexed to get profitable. Be cautious before you add this kind of revenue streams to your industrial sales.
Service revenue can be great but is a change in business model
Most people think of after market or service revenues when the think of addition additional revenue streams in industrial sales.
It’s not without warning, however. The service business, be it maintenance or repair, is a very different business model than hardware sales. It may seem like a common additional revenue stream in industrial sales but be careful. Other alternatives already mentioned are less complexed than adding a service business.
“The service business is not the low hanging fruit as it may first appear. It’s an additional source of revenue, but its also a different business model.”
Anything from maintenance recommendation to periodic maintenance and repair can be an additional service revenue to your hardware sales.
Personally, I would recommend you to evaluate other options before adding a service business. There are easier ways to add revenue streams in industrial sales.
To sum it up, watch carefully what additional revenue streams there are in sales. But do explore those revenue and earning potentials. Manage correctly they will add up and potentially becoming a great profit contributor to your business.
Most importantly, adding revenues streams in industrial sales provide a chance to improve thin margins generated from your core product.