Equipment-as-a-Service – opportunities, risks, implementation

Having addressed customer needs and the general concept in the first part of the Equipment-as-a-Service series, we now want to examine both the opportunities and the risks from the perspective of a plant engineering company, if it wants to implement the EaaS business model as a provider.

Finally, you will find some important points that need to be taken into account during implementation.

Opportunities

Full-service solution provider for customers

As an EaaS provider, you no longer only provide your customers with a pure machine, you offer a concrete solution for a (sub)process. Users receive a stable production process and only have to pay for machine availability. The customer no longer needs to worry about maintenance and servicing.

Recurring income

Production at the customer’s premises equals sales revenue at the EaaS provider. The pay-per-use billing model generates continuous revenues, thus stabilizing financial liquidity.

Increase of customer loyalty

The regular exchange of information significantly increases customer loyalty. If the classic sale of a machine usually only involved contact with the customer when it came to a new investment, there is now a continuous exchange. This can be in the form of possible process optimization or growth potential.

Increasing the customer lifetime value

The regular and recurring revenues increase the customer lifetime value in the long run. Increased customer loyalty also offers significantly more monetization options, both for existing EaaS projects and new solution options for customers.

More purchase options for the customer

By diversifying its portfolio of products and services, the provider can respond to different customer needs and offer the most suitable solution in each case. The EaaS model complements the classic offering and does not (for the time being) replace it.

CAPEX-to-OPEX

The shift from CAPEX to OPEX allows the customer to grow without having to make large investments. This makes the EaaS-provider an important partner for future growth.

Risks

Prefinancing

A big risk is the financing of the machine. Since there is no one-time transaction, the production costs are not initially covered but are only earned after a certain period of time. One way to mitigate this risk is to set up the EaaS business model together with a financing partner. This could be, for example, a bank or insurance company looking for new investment opportunities.

Full responsibility for a possible loss of production

In this model, the machine builder and operating company takes full responsibility for the uptime of the system. Downtimes and maintenance intervals must be known in order to guarantee a stable process. Furthermore, the machines must always be accessible in order to be able to eliminate possible disturbances immediately.

Incorrect calculation

Incomplete or insufficient data of machines and customers can lead to incorrect cost and price calculations. In the worst case, only losses are incurred. Therefore it is important not to take the financial calculation too lightly. In addition to the usual suspects such as initial costs, maintenance expenses, spare parts and rejects, this subscription-based service requires you to pay attention to things like churn rate, lifetime value, subscriber acquisition costs or other monthly recurring costs.

Change in the sales process

Since EaaS is a completely new service, explanation will be needed in the sales process. The marketing materials will need to be adapted to this and the sales team trained accordingly. The entire sales organization will have to be partially rethought and designed. In addition, presumably well-known commission models are no longer effective and may have to be revised.

Change in the billing process

Instead of a one-time invoice, invoices of different amounts must be created each month, depending on the production volume. A new automated process must be initiated for this, as this flood of invoices cannot be handled manually. For accurate invoicing, it is also important to have current production data per month – there must be no delay in transmission.

Points to consider when implementing EaaS

Once you have weighed up the opportunities and risks and decided that the Equipment-as-a-Service business model could be a viable option for your company, you should think about the following topics in advance

  • Taking the customer’s point of view
    Unfortunately, this is one of the biggest mistakes companies make when it comes to developing new business models: They do not think radically from the customer’s point of view. Put yourself in the shoes of your customers and find out where the specific challenges and wishes lie. Where are the problems in the current process chain and how can you address them with your EaaS solution?
  • Physical access
    Where exactly is the system in your customer’s production? How do you have access there? Can you enter there 24/7 or only during certain time windows? What does this mean for your processes with regard to maintenance and repair?
  • Digital access
    How is the machine connected to the network? Do you have to accept restrictions of the customer’s IT? Is the data connection stable for real-time data transfer?
  • Utilization of the machine
    Does the customer have correspondingly high orders to ensure good utilization of the machine? Is your machine set up in such a way that it can automatically carry out tool changes to produce such different products? Do you have a corresponding forecast from your customer in real-time in order to be able to (automatically) plan capacity utilization in the medium to short term?
  • Raw material
    The supplied raw material can also play a decisive role. Does your process run flawlessly, with almost any material, or do you need a very specific composition, delivery condition, size, etc.? The entire logistics process must be designed for your EaaS machine. Can you rely on your customer’s processes and suppliers there, or should you involve a raw material partner in your EaaS model? Make sure you have appropriate agreements with your customer.
  • Data ownership and provision
    Clarify who owns what data and who is allowed to use it. Do you make certain data available to your customers? Are you provided with all the necessary data of the surrounding process steps so that you can process them? Absolute transparency is extremely important here to create trust in all directions.

As you can see, the introduction of an Equipment-as-a-Service business model is not trivial. But despite the risks, it offers great opportunities for your future portfolio. Here it is important to identify customer requirements very precisely and to dive deep into the customer’s processes. You also need to have complete control over your own machines and develop a good prediction algorithm to avoid falling into a cost trap. If you take these aspects into account, the EaaS model can be a financial success for you as well.

For the Equipment-as-a-Service business model, we have developed a business model canvas so that you have an overview of the key facts on one page. If you are interested, please send an e-mail to with the subject “EaaS-Canvas”. You will then be sent the PDF.

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