Challenge Nr. 1: Establishing Equipment-as-a-Service (EaaS) pricing / contracts
One of the challenges in establishing a usage-based business model (such as PPU, EaaS) is the development of a sound pricing concept. Equipment providers need to have a closer look at the following topics:
1.1 New risks associated with EaaS models:
By offering EaaS financing models, providers are increasingly confronted with new risks:
- Risk of customer bankruptcy. If the customer gets into financial trouble, the customer may no longer be able to pay for the usage of the asset. Because the equipment fees are spread over the life of the machine, the manufacturer bears the risk of a possible payment failure.
- Environmental risk. There are a number of factors that should be considered when drawing up a contract. For example, severe operating conditions (high temperatures, dust, vibrations) can negatively affect the performance of machines. This could result in higher costs for the machine operator and lower income that was not taken into account when the contract was drawn up.
1.2 Defining and measuring value
Each client defines and measures success differently, thus a common understanding has to be reached with every single customer, outlining and measuring the respective risks and benefits.
1.3 Design flexible payment options
Many industrial customers are not used to paying for capital goods monthly or on a usage basis. Therefore, EaaS providers need to create flexible and creative ways with which customers can pay for the use of devices (for example pre-paid tickets) or they use Pay-per-Use platforms like Findustrial.
Challenge Nr. 2: Transitioning from existing business models
Switching from the existing business model to a Pay-per-Use or EaaS business model can be difficult. The establishment of an “as-a-service” model is usually associated with two challenges:
2.1 Complexity related to existing sales relationships
Many OEMs have a large network of distributors and therefore often have difficulties simply implementing a new business model. Because when it comes to implementation, not only is your own business model subject to changes, but also the sales partners have to deal with consequences for their distribution model or it could even be destroyed.
2.2 Lower initial revenue and higher costs associated with moving to “as-a-service”
When switching to a consumption-based business model, providers will likely have lower revenues at the beginning, as the entire value of the asset is not paid at the beginning, but the payments are spread over the entire life of the machine. In addition, they will be confronted with higher investments, since they first have to invest in the new technology as well as in personnel. Companies that want to adjust their business model accordingly must plan this transition carefully and ensure that funding has been secured.
Challenge Nr. 3: Select flexible financing solutions/partners
OEMs offering EaaS need flexible financing partners when dealing with their customers. Many traditional financiers are ill-positioned to carry out Pay-per-Use financing and cannot respond to the individual needs of their customers. However, there are already some that offer new financing solutions to meet the challenges of these new business models. In these cases, the payments are based on the actual utilization of the new machine. If it is low, the repayment goes down as well. If usage picks up again, repayment rates increase at the same time.
How can Findustrial help to overcome these challenges?
Get in contact with us and we tell you more!