In the run up to AMP6, Matthew Wheelock, Chief Executive of specialist business development and sales consultancy Wheelocks which works with companies operating in the water sector, discusses how they can beat the well-documented boom/bust AMP sales cycle.

Offering the right financial mix of products and services is a challenge to any business, but can be critical for small and medium enterprises (SMEs) in the water industry. The water utility regulator’s five-year Asset Management Period (AMP) cycles have unwittingly produced a well-documented cycle of ‘boom and bust’ for the supply chain.

This can mean few or no utility sales for three to four years, then one or two years worth of sales in six months, all with very tight delivery times and thin margins. The impact of exposure to this flux on cash flow can be catastrophic and has led to significant consolidation within the supply chain and subsequent reduction of competition over the years.

This is certainly the case with companies that are over-reliant on large capital plant sales. However, businesses relying too heavily on lower value, higher turnover parts and consumables can also get into difficulties. This is, firstly, because such provision is demanding on labour and administrative resources, but also because commoditisation can put prices under pressure and cause margins to shrink.

Maintaining the balance of sales and revenue between the plant, parts and service business components, which is never easy for companies, is the way to survive boom and bust. Historically, companies have often shied away from offering service and maintenance, particularly those that have historically been product focused.

Yes - service is labour intensive. Yes - service does not directly deliver the margins that capital plant can. However, an orientation towards service does have some genuine merits:

• It gives you a channel to sell parts, consumables and additional plant
• It helps to keep your competitors out of your customers’ sites
• It delivers steady and foreseeable revenue
• It is scalable
• Reasonably predictable margins and service contracts are a genuine benefit to your company’s valuation
• It keeps you close to your customers

Still not convinced? A recent study of service revenues has revealed that a £10,000 annual service contract typically delivers £20,000 revenue due to the sale of additional spares and consumables.

Over a 2-3 year period, based on the experiences of Wheelocks’ clients, it is not unreasonable to expect that a small/medium-sized capital plant sale will be identified and contracted off the back of the service contract, delivering, say, £50,000 in that year. Over a five-year period, a large capital plant sale could well arise, valued at a possible £200,000.

In other words, over five years, a service contract with a face value of £50,000 could deliver £350,000 in total revenues – whilst simultaneously providing the right mix of steady, sustainable revenue and growth, whilst keeping competitors at bay.

For more information visit www.wheelocks.co.uk or email  This e-mail address is being protected from spambots. You need JavaScript enabled to view it