How Effective Are You at Monetizing Service Offers?

How Effective Are You at Monetizing Service Offers?

Getting your service monetization strategy right is increasingly critical. Ten years ago, revenue flowing from technology was double the revenue flowing from services. Now, that relationship is flipped – with traditional services and recurring technology subscriptions dominating the market. How well is your company monetizing the value delivered by your technology service activities? Where are you compared to other technology companies in your peer group? Is your company leaving money on the table when it comes to charging for service activities? To help you answer these questions, TSIA has defined a new industry benchmark: the Services Monetization Power Rating (SMPR). Once you know where you stand, I invite you to engage with us for a tailored plan based on your score versus your peer group average. What is the Services Monetization Power Rating?TSIA’s Services Monetization Power Rating (SMPR) was developed to help companies optimize their service portfolio strategy for the current and future market. Our researchers created the SMPR as a tangible yardstick to measure your ability to monetize your services and give insight into areas that might need improvement. How effectively are you monetizing services? Calculate your service monetization power rating below.

How to Calculate Your Services Monetization Power Rating

To calculate SMPR, you sum the percentage of total company revenue coming from services beyond the core technology offer, the percentage of active customers with any type of recurring services agreement, and the percentage of active customers with a premium services agreement.

Services Monetization Power Rating
Services Monetization Power Rating

Let’s break down each calculation point and how you reach it.

Percentage of Total Company Revenue from Services

This metric reflects the percentage of your total company revenue that is non-technology services revenue. It excludes technology subscriptions and software maintenance but includes:

  • Revenue from all standard and premium services (e.g. support and adoption services, education services, professional services, managed services, field services, etc.) sold separately from the technology.
  • Both recurring and project-based services revenue

This metric evaluates the company’s ability to monetize services beyond the core technology.

Percentage of Customers with a Recurring Services Agreement

This metric reflects the percentage of your total customers currently active on any recurring service agreement, excluding project-based, time-and-material-based services. This percentage does include both standard and premium recurring services bundled with underlying technology and sold separately, including:

  • Software-as-a-service subscriptions
  • Technical support, software maintenance, and hardware warranty
  • Managed services

This metric evaluates the company’s ability to monetize recurring services overall, including technology subscriptions and traditional technology services.

Percentage of Customers with a Premium Recurring Services Agreement

This metric reflects the percentage of your total customers currently active on any recurring premium services agreement, including:

  • Premium technical support and warranty services (excludes standard/basic support/maintenance/warranty)
  • Professional services subscriptions, premium consulting services beyond initial implementation (example: residency services)
  • Designated/dedicated technical account manager services
  • Premium, fee-based customer success services
  • Managed services beyond standard monitor services

This metric evaluates the company’s ability to monetize recurring premium technology services specifically. All of these data points combined give us your SMPR score. The lower a company’s SMPR score, the more likely it is that the company is leaving money on the table. Companies with a higher SMPR within their peer group are enjoying a more robust revenue stream from service offers.

Factors that Influence Your SMPR Rating

Once you’ve calculated your score you might be wondering why exactly your number was higher or lower than expected. What internal or industry factors played a role in getting the score you got? There are two main factors that impact your SMPR rating:

  • The target economic engine of your company
  • Your company’s ability to design and sell compelling service offerings

Target Economic Engine

Some technology business models are designed to be light on services, offering low-cost technology with no apparent intent to sell services. In fact, the provider hopes the customer never needs human assistance with the technology at all. Contrast that to a traditional on-premise enterprise software company that expects forty to sixty percent of total company revenue to come from ongoing support and maintenance contracts. Even if you find yourself in an industry traditionally light on services, don’t think that your lower SMPR score means you’ve optimized service revenue. Many traditional industrial equipment manufacturers, for example, are realizing they need to monetize services around software offerings as their offers evolve beyond the (often very expensive) core hardware and standard warranty services.

Ability to Monetize

Some companies have a real opportunity to monetize services that they are currently providing for free, or develop and monetize new value-added services. To better understand the potential economic opportunity related to monetizing services, you should start by comparing your current SMPR to that of your industry peers. Do you see companies charging for services that you offer for free? Are your competitors offering services that don’t currently exist in your offers? Asking these questions and using the SMPR for a comparison point will help you assess where you’re at with your ability to monetize offers.   Once again, just because you haven’t monetized offers in the past doesn’t mean you can’t shift your strategy moving forward. In order to build a business model that better reflects where the market is headed, you will need to be intentional and put resources behind it. The lack of a formal, mature service offer management practice often contributes to lower SMPR scores, and is something the industry as a whole needs to put more focus on.

SMPR Calculation Example

When introducing a new benchmark, it can be hard to imagine how it works in “the real world.” To help better illustrate how this can be applied to your service offers, here is an example of how the rating is applied. A SaaS provider with 20% of total company revenues coming from service activities provides 100% of its customers with standard, reactive technical support as part of the technology subscription. Only 3% of customers have opted for a premium service agreement.SMPR = % services revenue + % recurring services + % premium services           = 20 + 100 + 3           = 123Contrast that to an industrial equipment provider with 10% of revenue from services.  Sixty percent of customers are covered by the company’s one standard support agreement, and 25% of customers are entitled to premium services.SMPR = 10 + 60 + 25            = 95In these examples, the companies could then take their SMPR scores and compare it to that of their industry peers. They could create a strategy around how they want to increase monetization of their service offers, and use the SMPR as a benchmark to track their progress.

Calculate Your SMPR for Pricing Service Offers

Benchmarks put data in the driver’s seat to bring about change. When I worked as a service offer leader, I would have jumped at the chance to know where my offers stood compared to my peers. Applying the SMPR to your service offers will give you a sense of where you’re at and where you need to go. If you’re struggling with how to monetize your service offers, here are some key takeaways you can implement today:

Monetize Your Service Offers with the Help of Industry Experts

Our Service Offer Management team brings to the table years of real-world experience and an extensive knowledge of industry best practices. Using our research and personal experience working with our member companies, we have answers to your service offer questions.

Not a member yet? Reach out today to find out more about all of our research practices and how we can help you achieve business outcomes.

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