The Benefits of Equipment as a Service for Manufacturing
Manufacturing is changing faster than ever; we’ve seen how the industrial equipment makers are trying new ways to disrupt the typical sales model and capture more value by creating subscriptions and keeping ownership instead of selling products on a one-off basis. This move has been fueled by the Internet of Things (IoT) connecting nearly every piece of equipment in the factory.
With IoT, many manufacturers have started the slow journey to selling their equipment as a service (EaaS). This movement is the next step for manufacturers looking to transform their business, let’s look at what EaaS is, the history, and some exciting examples of companies doing it.
What is Equipment as a Service (EaaS)?
Equipment as a service or EaaS is a model where the producer of a product rents out equipment to end-users while collecting payments on a monthly, or yearly basis for the usage of the product.
This is beneficial to manufacturers because it delivers reliable streams of revenue if the machines are working, they can collect their payments. EaaS also enables both the manufacturer and end-user to collect data on how the product is used, which helps both understand how the product is used, and how.
What are some common pricing models for EaaS?
There are two major models for EaaS, outcome-based, and time and usage models. These are usually based on how the seller envisions the equipment being used.
Using an outcome-based model enables companies to charge based on operational or financial achievements. This model can be challenging if the manufacturer doesn’t fully understand the value of the equipment. If the value isn’t calculated correctly, it can be difficult to properly charge for a single piece of equipment.
A time-based model is just what it sounds like, a payment plan based on a fixed period. A great example of this is German power tool manufacturer Hilti. At Hilti it’s possible to pay a monthly subscriber fee for over 1 million tools. With Hilti Tool Fleet Management, there is no upfront capital investment to tool up for projects. Instead, Fleet tools come at a fixed monthly rate.
This benefits customers by giving them controlled costs. The monthly fee covers unexpected costs, repairs, and even theft protection. Hilti also benefits from this relationship by letting the customer trade up to the latest tech without renewing at the end of every term. This increases the customer’s reliance on the product while making them less worried about costs, and unexpected spending.
Usage models are tied to how much a product is used. One of the most famous examples of this is the Power by the Hour model by Rolls-Royce. Power by Hour is a way to manage engine maintenance for Rolls-Royce plane engine users. This removed the burden of engine maintenance for the customer and transfers it to the management of Rolls-Royce.
This plan is exciting to many customers of Roll-Royce because the plan is charged on a fixed per hour basis, making it critical for the engines to perform. Creating a reliable product keeps Roll-Royce on the top of their game while keeping their easing worries of the customer on Maintenace and other challenges that airlines are accustomed to. Creating a joint focus on minimizing operational disruptions between buyer and seller really does go further than you’d think.
The benefits of EaaS
More revenue share
This new, flexible way of working enables companies to subscriptions based on a bundle of services and products. This enables flexibility to both seller and user. Imagine how much easier it is to predict revenue as a business, while the customer only must click one button to get tools delivered to their job site as Hilti does. Check out just how much an ongoing service relationship can reduce the operating expenses for customers while also returning more revenue to the vendor:
That’s right, the total lifetime value of the products using EaaS can deliver 50% more of the revenue to the vendor while staying in the traditional sales model only nets a possible 25% of revenue.
This is a major selling point of EaaS, predictable costs for the user. Knowing how much each piece of equipment costs per month or year will allow for more flexibility in spending on other parts of the operation. Maintaining the product is also an important part of the cost factor. If a tool breaks down it can be quickly replaced without an additional charge to the user. This also includes updating software which is now the responsibility of the equipment provider.
EaaS comes with a lot of data on how pieces are being used, this gives the provider an idea on how to best maintain the equipment to maximize the product and keep the customer happy. Keeping track of this will also reduce the chance of product failure, or disruption for the end-user, while also helping the provider learn new ways to give better product support.
CPQ and Equipment as a service
Configure, Price, Quote (CPQ) software is helping many manufacturers begin their journey to create these subscriptions essential for EaaS success. Manufacturers can create the product that their customer wants and include maintenance, service, and more all directly in a quote.
CPQ also enables users to combine one-time, recurring, and usage-based charges to optimize pricing structures. This is especially important for manufacturers who sell based on usages such as mileage, services, and more. It’s even possible to forecast the monthly recurring revenue (MRR) and annual recurring revenue (ARR) using CPQ.
The shift is scary but worth it
Companies can no longer rely on one-time deals to keep customers happy. That’s a scary thought, but a change is necessary for manufacturers to succeed in today’s market. Factories need to be connected from the front office to the back and then to the customer. Taking advantage of ways to remove the worry from the customer through upgrades, and predictive maintenance will keep them connected to your subscription offering. This also creates what all companies want, reliable products and predictable revenue. Adopting the EaaS model is essential undertaking manufacturers are considering across industries. Discover how Tacton is helping these disruptors create value with EaaS and CPQ by scheduling your demo today! Or check out our latest eBook The Future of Manufacturing Subscription Models