The industrial aftermarket, once considered a secondary business of spare parts and repairs, has evolved into a strategic growth engine for energy-focused industrial and manufacturing companies. This shift isn’t just an incremental change, but a critical business and strategic imperative driven by declining and increasingly volatile capital spending by oil & gas, energy, and chemical companies.
A large installed base and the opportunity to use aftermarket services to deepen customer relationships are also powerful growth drivers. A good example is Chart Industries, which acquired Howden to unlock a global aftermarket network as a core driver of revenue and margin. Recent disclosures show that aftermarket network has accounted for about 30% of Chart’s revenue with margins in the 40% range. This transformation is a story playing out across the industrial sector, as companies leverage their aftermarket offerings to create competitive advantages that are difficult to replicate.
ADI Analytics has conducted extensive research and worked with a wide range of industrial clients to understand this evolving landscape. Our work, including interviews with field service teams, plant operators, and procurement leaders, reveals that a modern aftermarket business is a sophisticated blend of hardware, software, and services designed to extend asset life and performance. It’s a move away from reactive fixes to a proactive, digitally-enabled ecosystem.
The compelling case for the aftermarket
The importance of the aftermarket is underscored by several key factors that make it a critical pillar of a company’s strategy.
Stronger margins
Aftermarket services consistently deliver margins that are 15 to 25 percentage points higher than original equipment (OE) sales (see Exhibit 1). For instance, Komatsu earns 60% of its profits from its aftermarket business, even though it only accounts for 50% of sales. The gross margin on Komatsu’s parts and services is roughly 40-50%, compared to a 20-30% gross margin on its OE sales.
Exhibit 1. Aftermarket vs. original equipment margins at industrial players.
In another example, Chart Industries targets margins in the low- to mid-40% range for repair and service work, which is roughly double its historic OE margins. These higher margins are driven by factors such as lower capital intensity, recurring revenue streams, and the pricing power that comes with proprietary components.
Revenue stability and resilience
The aftermarket provides a buffer against the volatility of capital equipment cycles. Companies like Donaldson and Kadant have relied on this stability to navigate economic downturns. Donaldson states that 75-80% of sales in its Mobile Solutions segment derive from aftermarket parts, which stabilize revenue during new equipment production cycles. Similarly, Kadant highlights that 65% of its Q1 revenue in 2025 came from aftermarket parts, offsetting softer capital equipment demand. This countercyclicality helps to cushion revenue and margin volatility because equipment fleets still require servicing even when new orders slow down.
Deeper customer loyalty and competitive moats
Aftermarket offerings foster deeper customer loyalty and create durable competitive advantages. Long-term service agreements (LTSAs), digital monitoring, and proprietary parts create high switching costs, making it more difficult for customers to move to a different vendor. Firms that systematically lock in their installed base via digital monitoring, contractual agreements, or globally distributed parts warehouses enjoy higher and more stable profitability. For example, in its aerospace business, Eaton’s sizable installed base and the FAA-mandated servicing of aircraft create high switching costs, giving the company confidence that its aftermarket business will flourish. Similarly, Honeywell’s aerospace segment uses “power-by-the-hour” contracts that drive sticky, high-margin revenue.
Entry into premium markets
Aftermarket expansion can be a gateway to new, high-value markets. OEMs such as Parker Hannifin and Chart Industries are leveraging their service capabilities to tap into opportunities in energy transition and decarbonization. This allows them to diversify their growth and enter segments that may not be accessible through traditional equipment sales alone.
The anatomy of a modern aftermarket business
Today’s aftermarket is a far cry from a simple parts counter. It is a sophisticated, digitally-enabled ecosystem built on five key pillars.
Connected assets
Companies are connecting their equipment to the internet to capture real-time data. Caterpillar, for example, manages over 1.5 million connected machines, which enables predictive maintenance and performance optimization. Komatsu also leverages its population of 770,000 active machines to reinforce parts and maintenance pull. This data provides the foundation for new service models and allows for a shift from reactive repairs to proactive, data-driven solutions.
Digital services
OEMs are embedding software into their equipment, moving beyond the initial sale. Platforms like Honeywell Forge and Eaton Brightlayer offer diagnostics, firmware updates, and analytics that enhance operational efficiency. Siemens Energy reported that “mods and upgrades” now make up 37% of its total service backlog, showing a clear shift away from traditional spare parts to transformational offerings.
Lifecycle agreements
The use of LTSAs, framework agreements, and leasing models is becoming standard. These agreements provide customers with predictable costs and a steady stream of revenue for the service provider. Baker Hughes, for instance, generates one to two times the original equipment revenue over the life of a machine through its service contracts. Caterpillar also sells two-thirds of its new machines alongside Customer Value Agreements that guarantee future parts and labor income.
Global service networks
A strong local presence is crucial for amplifying aftermarket reach. The integration of Howden’s global service network following the acquisition by Chart Industries is a prime example of how a combined product portfolio and local service footprint can create a powerful network effect.
Customer-centric design
The most successful aftermarket strategies are built around a deep understanding of customer needs. Komatsu’s Smart Construction platform, which helps users manage fleets and schedule maintenance, reinforces the value proposition by putting the customer at the center of the solution.
Building a winning aftermarket strategy
Building a successful aftermarket strategy is a deliberate and data-driven process that begins with a clear understanding of the market and customer needs. ADI Analytics has supported clients in a multi-step process to transform their aftermarket businesses.
- Know your market and installed base: It starts with a comprehensive market sizing exercise to understand the total addressable market. Through our installed base validation, we helped one client analyze over 400,000 installed units, uncovering over $300 million in untapped service potential. This analysis, combined with voice-of-customer research, helps identify opportunities and understand what customers truly want, such as faster response times or predictive maintenance.
- Prioritize customers: Not all customers are equally valuable. Using our proprietary customer segmentation models, we helped a client identify the top 20% of customers who were responsible for 60% of the aftermarket opportunity, enabling a more targeted and effective engagement strategy.
- Build the right offerings: The most effective aftermarket portfolios include a mix of offerings. These can include LTSAs that provide predictable revenue, digital subscriptions for remote monitoring and diagnostics, and leasing models that lower the barrier to entry for customers. In one case, a new LTSA program we helped design increased a client’s recurring revenue by 35% in just two years. Our service offering design work helps clients create these high-value solutions.
- Align the organization: Strategy is only as good as its execution. This requires aligning sales, service, and customer success teams and implementing commercial excellence programs that integrate pricing, campaign management, and service delivery. It also involves workforce transformation, such as upskilling field technicians in new digital tools, analytics, and even cybersecurity as service visits become more complex.
- Embrace technology: Technology is a key enabler of modern aftermarket services. Predictive analytics, augmented reality (AR)-assisted repairs, and digital twins are transforming how services are delivered. These technologies enable a shift from reactive repairs to proactive, data-centric platforms that improve uptime and lock customers into long-term, high-margin relationships. For example, Caterpillar doubled its online parts customers, and those customers now purchase 24% more parts incrementally. Our digital transformation services help clients develop these technology strategies.
In conclusion, the aftermarket is no longer an afterthought; it is a strategic imperative for industrial companies seeking to thrive in today’s competitive landscape. By adopting a thoughtful, data-driven approach, companies can transform their aftermarket business from a support function into their most profitable and resilient business line. This unlocks new revenue streams, deepens customer relationships, and provides a powerful competitive edge.
– Uday Turaga
About ADI Analytics
ADI is a prestigious, boutique consulting firm specializing in oil and gas, energy, and chemicals since 2009. We bring deep expertise in a broad range of markets where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
We also host the ADI Forum that brings c-suite executives together for meaningful dialogue and strategic insights across the oil & gas, energy transition, and chemicals value chains. Learn more about the ADI Forum.
Subscribe to our newsletter or contact us to learn more.
