# From product to service: recurring revenue for Italian SMEs

In Italy, companies that sell machinery earn about a quarter of their revenue from services, yet the part that renews year after year is minimal: maintenance contracts account for 3%, and digital and connected services for 1%. The shift **from product to service**, the ability to accompany a customer over time with a measurable result, is the lever that moves margin from the sale to the relationship.

For many small manufacturers, support already exists: phone calls, spare parts, work done outside any contract. It is a cost nobody bills for. The part of the offer that generates recurring revenue sits at the edge of the profit and loss statement.

## Margin moves from product to service

A 2017 McKinsey analysis across thirty industrial sectors measured an average operating margin of **25%** for aftermarket services, against 10% for new machinery sales. The figure is almost ten years old and covers large international manufacturers, so it stands as an order of magnitude. The direction it points to is confirmed by a simple mechanism: service revenue comes from a customer already acquired, renews itself and does not require a new sales cycle.

In industries with long life cycles the gap is even wider. In the same study, the total value of services on a gas turbine reached 75% of the initial sale price, spread over twenty to fifty years. The machine is sold once; its maintenance is sold for its entire life.

Service also has a stabilising function. When the market slows and customers postpone buying a plant, the installed base keeps running and keeps needing maintenance. A portfolio of recurring contracts reduces the swing in orders. The same reasoning explains why unplanned downtime weighs so much: a 2024 study by Siemens and Senseye puts it at around 11% of revenue for the world's 500 largest companies. That is a figure for large plants, produced by a maintenance-solutions supplier, and an SME has to recalculate it on a single machine.

A second factor has made the shift more concrete: the connected product. The value of the sensor and the platform lies in the ability to observe the state of the machine and to measure the service. It is the mechanism that [moved value from devices to services](/en/ecorner/2023/iot-italy-growth.html).

## How much service weighs in Italy

A survey by Digital Industries World, run with ASAP Service Management Forum and the Italian machinery trade associations, captured the Italian sector in April 2024 on a sample of 158 manufacturers, three quarters of them SMEs. Services account for about 25% of revenue, but the composition dismantles the image of an industry already oriented to service: 16% is the sale of spare parts, consumables and accessories; 8% covers technical support, training, upgrades and refurbishment; 3% is maintenance contracts; 1% is digital and connected services.

The difference between small and large companies shows across the board. In SMEs, services contribute just under a quarter of revenue; in large ones, almost a third. A defined service strategy exists at 83% of large companies and 48% of SMEs. Only 29% of companies have allocated a dedicated budget, and 41% have defined specific roles.

Awareness is not the problem. Almost 70% of respondents believe that within three years digital services will be decisive in purchase decisions for capital equipment, and among large companies the share rises to 92%. The weak point is operational translation: from conviction to organisation.

## Service changes the offer, the price and the responsibility

Selling a service is a change of model that affects the offer, the price and the scope of responsibility. The machine stays; what changes is what the company promises and for how long.

The offer moves from a product with optional support to a defined service, with explicit levels: what is included, how quickly someone responds, what falls outside. The price follows the same logic, because a one-off payment gives way to a fee, to usage or to a guaranteed result, and each formula transfers a different risk onto the company. A fixed fee is the simplest to administer. Pricing on the result requires historical data, the capacity to absorb a bad year and a knowledge of the customer's process that few SMEs have at the start.

The comparison between buying and subscribing also has a tax dimension. A capital asset is deducted through depreciation, spread over its useful life; a service fee accrues by competence and is deducted in full in the year. Italy's 2026 budget law added a tax uplift on the cost of new, interconnected 4.0 capital assets, up to 180% for the smaller investment bracket: an eligible asset weighs on taxable income by less than its price. A service fee remains a deductible cost, without the uplift reserved for eligible assets. The choice between the two paths depends on the company's tax and cash profile and requires an accountant's advice. For anyone selling the service, the point to keep in mind is that the tax lever pushes the customer towards the purchase.

Support changes too. A call-out is judged on the single episode; a contract is judged on response time and continuity of service, which have to be measured and declared. Responsibility changes as a consequence: whoever sells a continuous result answers for the downtime, the quality of the data and the working of the system even when the fault originates in a component they did not produce.

The skills required rarely coexist in a small manufacturer: reading data, integrating with the customer's systems, designing the service and calculating the margin. This is where the shift stalls. Before adding tools, a coherent design is needed, the same principle that underpins [the digital architecture of a process](/en/ecorner/2026/digital-architecture-tool-sprawl.html).

## From data to contract: the conditions

A connected product is not a service. The path described by the Internet of Things Observatory at Politecnico di Milano runs through five steps: the object produces a datum, the datum is analysed, the analysis enables a service, the service supports a decision. IoT-based services are worth EUR 4.5 billion, more than 40% of the Italian market, and 40% of companies with projects combining IoT and artificial intelligence report measurable returns.

Within those projects, predictive maintenance appears in 49% of cases, second only to cybersecurity and image recognition. On the service-offer side, however, the machinery survey places it among the least widespread activities, below 40% of companies. Remote monitoring has a different history: 73% of companies use platforms to observe installed machines, and 76% manage alarms and anomalies. Basic connectivity is already there; what is missing is the contract that turns it into revenue. [Which connectivity a connected product really needs](/en/ecorner/2026/iot-connectivity-lpwa-satellite.html) depends on the sites, the data and the costs.

The conditions for building one are known and not very technological. The first obstacle is fragmentation: if information stays locked in separate systems, its contribution fades. The second is data quality, because analysis on incomplete bases produces unreliable indications. The third is security, which enters service design from the start. Integration is the least visible line in the accounts, as happens with the [hidden costs of digitalisation](/en/ecorner/2026/hidden-costs-digital-transformation.html).

On the rights side, the European data regulation, the Data Act, has governed access to and use of information generated by connected products since 12 September 2025. Anyone building a service on machine data has to know who can access it, under what conditions and with what ownership. Responsibility for the service also runs through here.

## Where an SME starts

The first realistic step is a scheduled maintenance contract with a fee and clear service levels, supported by structured remote assistance and essential remote monitoring. Pricing on the result comes later, when there is historical data and the capacity to absorb the risk. These activities start with a written offer, a price calculated on real delivery costs and the discipline to measure what happens. The expensive IoT installation comes further down the line.

Technology is added once the model holds, and at that point it multiplies the capacity to serve, because it makes the state of the machine visible and allows an intervention to be sold before it becomes a stoppage. The order of the factors matters: first the contract, then the sensor.

The service has to be measured the way a product is measured, with margin per contract, renewal rate and the cost of work outside the contract. Without these numbers the decision to invest stays a hunch, and a hunch cannot carry a change of model.

The bottleneck in the shift from product to service is organisational: it requires the decision to sell a result, a written offer, a price, a responsibility and a measure. Whoever takes that step turns a support cost into recurring revenue and adds to the machine a relationship that lasts as long as its useful life.

## Frequently asked questions

**What does it mean to move from product to service?**
It means selling a continuous result that accompanies the customer over time, with a contract that defines what is included, how quickly someone responds and what it costs. The company stays involved in the life of the product and turns support from an accessory cost into a revenue line.

**How much do services weigh in the Italian machinery sector?**
About 25% of revenue, according to the survey run in April 2024 on 158 manufacturers. The recurring part is minimal: maintenance contracts are worth 3% and digital and connected services 1%. The rest is the sale of spare parts, consumables and transactional support.

**Do services earn more than products?**
A 2017 McKinsey analysis across thirty industrial sectors estimated an operating margin of 25% for aftermarket services, against 10% for new machinery sales. The figure should be read as an order of magnitude, but the mechanism holds: the service starts from a customer already acquired and renews over time.

**Does selling a service require a connected product?**
No. The first scheduled maintenance contract can be built without sensors. Connectivity comes later, once the model holds, because it makes the state of the machine observable and allows intervention before a fault.

**Where does an SME start?**
From a maintenance contract with a fee and clear service levels, with structured remote assistance and essential remote monitoring. Pricing on the result comes when there is enough historical data and the capacity to absorb the risk.

## Sources

Digital Industries World and ASAP Service Management Forum, with the Italian machinery trade associations — *Osservatorio "Digital servitization nel settore machinery"*, UCIMU press release, 10 April 2024 — https://www.ucimu.it/press/comunicati-stampa/v/2024/04/presentati-i-risultati-dellosservatorio-digital-servitization-nel-settore-machinery-1/
Internet of Things Observatory, School of Management, Politecnico di Milano — *Dai dispositivi ai servizi: come cambia il valore dell'Internet of Things*, Giulio Salvadori, 20 July 2026 — https://www.osservatori.net/blog/internet-of-things/dai-dispositivi-ai-servizi-come-cambia-il-valore-dellinternet-of-things/
Internet of Things Observatory, School of Management, Politecnico di Milano — research page, 2025 data presented on 16 April 2026 — https://www.osservatori.net/it/ricerche/osservatori-attivi/internet-of-things
McKinsey & Company — *Industrial aftermarket services: Growing the core*, Advanced Electronics, July 2017 — https://www.mckinsey.com/industries/industrials/our-insights/industrial-aftermarket-services-growing-the-core
Siemens and Senseye — *The true cost of an hour's downtime*, 2024 — https://blog.siemens.com/2024/07/the-true-cost-of-an-hours-downtime-an-industry-analysis/
Regulation (EU) 2023/2854 of the European Parliament and of the Council, Data Act, applicable from 12 September 2025 — https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023R2854
Consolidated law on income taxes (TUIR), Presidential Decree 917/1986 — articles 102 and 109, depreciation of tangible assets and accrual of costs — https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:dpr:1986-12-22;917~art102
Ministry of Enterprises and Made in Italy — New Transizione 5.0 Plan, Iperammortamento 2026 (Law 199 of 30 December 2025; interministerial decree of 7 May 2026) — https://www.mimit.gov.it/it/incentivi/iperammortamento-2026