Leadership mandated an after-sale support program that would help ensure high product reliability. The mandate carried the challenge of properly pricing the service such that overall program profitability was achieved even if some number of individual participating customers generated a loss.
Existing customer sites were examined to understand the scope of coverage, including the in-place product that would need to be covered by the support program. Customers included both direct sales and sales through an independent distributor.
Examination of existing customers revealed a wide range of product purchases and utilization. In some situations, customers had a large installed base of product that was in regular use while in other situations customers had a small installed base of products with highly variable utilization.
Failure rates based on utilization were gleaned from service records. Costs related to support were identified, including replacement parts and shipping of materials to and from customer sites across the United States.
A simple Monte Carlo model was created in Excel that generated one-thousand instances of revenues and profits for each run. Ranges for installed product and utilization were set based upon customer information, and the model generated anticipated failures and associated support costs. Price proposals were adjusted until overall program profitability was achieved over multiple model runs.