Lessons learned: What you should consider when entering pay-per-use business models

December 23, 2024
Instead of buying expensive machines, companies are increasingly turning to pay-per-use models. However, the introduction of a pay-per-use model is associated with challenges.

Why pay-per-use is becoming increasingly important

The demand for flexible usage concepts is increasing - especially in mechanical and plant engineering. Instead of buying expensive machines, companies are increasingly turning to pay-per-use models. These business models offer users the opportunity to pay only for the actual use of machines, while reducing acquisition costs and risk.

For machine manufacturers, this means new sales opportunities, but also a fundamental change to the business model. However, the introduction of a pay-per-use model is associated with challenges. The following lessons learned show which aspects are particularly important.

1. define the business model precisely

The most important foundation of a successful pay-per-use approach is a clearly defined business model. It is not enough to simply equip machines with a meter. Rather, manufacturers must develop a clear strategy on how to monetize the use of the machines.

Important questions that you should clarify:

  • Which usage unit is calculated? (e.g. operating hours, units produced, energy consumption)
  • Which price structure suits the market? (fixed base price + variable usage costs)
  • How are usage and billing technically recorded? (e.g. IoT sensors for data collection)

A poorly thought-out model can lead to unpredictable revenues or pricing that is not marketable. An early profitability calculation and the use of simulation models helpto avoid this.

2. build IoT infrastructure as a technical backbone

Pay-per-use is not possible without a functioning IoT infrastructure. In order for the use of a machine to be reliably measured and billed, the machine must be networked. Data must be recorded, processed and securely transmitted in real time.

Technical requirements for an IoT infrastructure:

  • IoT-enabled sensors on machines to record usage data (operating times, cycles, energy consumption, etc.)
  • Central IoT platform for data storage and analysis
  • Interfaces for billing systems to link usage data with billing processes
  • Cybersecurity and data protection to prevent manipulation and data theft

Without a robust technical basis, there is a risk that usage will not be recorded correctly - which can jeopardize sales losses and customer satisfaction. A reliable IoT solution is therefore at the heart of the pay-per-use model.

3. consider the legal framework

The pay-per-use model differs significantly from traditional sales in legal terms. Instead of selling a machine, it is usually transferred to the user - comparable to a rental or service contract. This has legal implications that must be taken into account.

Legal questions that you should clarify:

  • Ownership: Who remains the owner of the machine? (Usually the manufacturer)
  • Contract design: What rights and obligations do both parties have? (e.g. maintenance obligations)
  • Liability: Who is liable for failures or damage? (Clarity through contractual clauses)
  • Data protection: Can the manufacturer use the machine's usage data?

A clear contractual basis minimizes the risk of disputes. The contracts should ensure that the manufacturer retains control over the machine, while the user receives clear rights of use and data protection.

4. develop a pricing strategy

One of the biggest challenges with pay-per-use business models is setting the right price. A price that is too high deters customers, while a price that is too low jeopardizes profitability. The aim is to establish a fair, comprehensible and at the same time profitable pricing model.

Typical pricing models:

  • Usage-based billing (per operating hour, production cycle or energy consumption)
  • Hybrid models (fixed basic price + variable usage costs)
  • Flat rate approaches (for regular users with a high frequency of use)

The price must be designed in such a way that it offers transparent incentives for the customer. Many companies appreciate the flexibility of a pay-per-use model, but still want to know in advance what costs they will incur. Simulation calculators or usage previews can help to show customers the costs transparently.

5. promote customer acceptance and build trust

The introduction of pay-per-use requires trust - both from customers and internal stakeholders. Customers who have been buying machines for decades now need to be convinced to switch to a usage-based model.

Tips for promoting customer acceptance:

  • Clear added value: Show how the customer benefits from lower investment costs, better flexibility and lower risks.
  • Transparent billing: Make sure that customers can always see how the costs are made up.
  • Digital platforms: Offer customers online portals where they can view machine usage and costs incurred in real time.
  • Ensure service quality: As pay-per-use is based on long-term customer relationships, service quality must be particularly high. Fast responses in the event of faults and reliable maintenance are essential.

A customer portal with real-time data on usage and costs can boost confidence in the model. Customers want to stay in control - with a digital solution to view machine usage, you can achieve this.

6. operate internal change management

The switch to a pay-per-use model requires not only external measures, but also internal changes. Many machine manufacturers are used to generating one-off sales revenue. The new model, on the other hand, relies on recurring revenue that flows continuously.

Challenges in change management:

  • Sales transformation: Sales teams must learn to market pay-per-use instead of selling machines.
  • Financial planning: Cash flow and sales planning change as one-off income is replaced by recurring payments.
  • IT adaptations: The integration of billing software and IoT platforms requires investment.
  • Employee training: The service team must be trained to master maintenance services and the handling of usage data.

Without change management, the introduction of the pay-per-use model is at risk of failing due to internal resistance. Early communication with the departments involved is therefore essential.

Conclusion: a rethink is worthwhile

Switching to a pay-per-use business model is not an easy transition. Companies in the mechanical and plant engineering sector need to rethink their business models, pricing models, IT infrastructure and sales strategies.

The lessons learned above show what is important: a well thought-out strategy, a powerful IoT infrastructure, transparent pricing, legal protection and strong change management. Those who pay attention to these success factors can benefit from the advantages of the recurring revenue model - and at the same time focus on the customer needs of the future.

About cap-on

cap-on supports companies in the mechanical and plant engineering sector with the introduction of pay-per-use and asset-as-a-service models. With an innovative IoT platform and intelligent billing solutions, cap-on offers everything you need for a successful entry into pay-per-use. Achieve new flexibility in sales, secure revenue streams and stronger customer loyalty - together with cap-on.

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