← Business Metric: Industry Specific (Industrials & Materials) (all topics)
New vs replacement - capital equipment spares
What it is
Capital equipment makers earn from spare parts, consumables and service on machines already in the field. For material handling, machine tools and engines the installed base generates revenue for a decade or more after the original sale
Aftermarket margins typically run well above original equipment margins
Impact on industries
- Smooths the violent cyclicality of capital equipment sales, since maintenance continues even when customers stop buying new machines
- Margins are materially higher than equipment sales, and the customer relationship is captive while the machine is in service
- Grows automatically with the installed base, so every equipment sale seeds a multi-year annuity
- Third-party and counterfeit spares attack the annuity, particularly on older machines out of warranty
- It is the same structure as replacement demand in tyres and retreading - the installed base, not new sales, is the real market