Updated: Dec 9, 2019
I want to take the time to share a topic that lingers more in my mind as I approach my speaking slot at Gainer Festival. It’s something that I’ll dive deeper into at the conference, but felt like it can really benefit those who won’t have the opportunity to attend.
I’ve been hearing from more original equipment manufacturers (OEMs) that they’re starting to feel the pressure of adopting a pay-per-use business model as their customers demand more flexible payment options to purchase their equipment.
To be quite honest, I don’t blame them. With the take over of the sharing economy and the widespread adoption of making “Anything a Service,” it was only a matter of time until this concept lingered into the industrial manufacturing sector.
With the OEMs urgency to adjust, I’ll answer the three most typical questions I get asked:
How can I transition into a pay-per-use business model? How does pay-per-use financing work? What are the hurdles of adopting pay-per-use business models, and how can I overcome them?
How can OEMs transition into a pay-per-use model?
When entering the pay-per-use model, two important supporting parties help you make a smooth transition while leveraging your current business model.
These supporting parties are:
A one-stop data management software solution
An experienced pay-per-use financing partner
Why do you need a data management software solution?
You need software to help you collect, transfer, store, and visualize your equipment usage data. The right software solution will have the IoT know-how and secure technical infrastructure to manage the collection and storage of data generated from your equipment’s utilization.
Additionally, the same solution will prioritize its internal operations to ensure that all the right tools are in place to manage every data-related component of your pay-per-use model.
Your equipment usage data is essential for operating your new revenue model and making future business decisions because:
You’re able to generate all of your pay-per-use invoices using this data. You receive this data back, analyze it, and improve your future product development, such as increasing your machine’s quality and understanding what future adjustments need to be made to extend its lifetime.
The truth lies within the data. Collecting raw usage data is one thing, but transforming that information into a visually pleasing format that possesses genuine business intelligence is an entirely different playground.
The gold lies in being able to translate this information to better your decision-making abilities. When getting started with a pay-per-use model, a leading solution provider must show you this high level of competence within its core values.
The best software provider must be a one-stop solution that specializes in all the IoT connectivity to gather your data, have the proper infrastructure to transfer this data securely, then transform that information into a standard readable format, and lastly have the best financial partners to help create an invaluable commercial product that will best support your assets and business activities.
Why do you need an experienced pay-per-use financing partner?
You need the right financing partner as the intermediary to provide your customers with a financing structure that compliments your pay-per-use model, or else your working capital will explode, your cash flow will have issues, and your balance sheet will be a mess.
I suggest finding a partner who can offer you and your customer a pay-per-use financing plan where the amount at which your customer pays off its debt is pegged to how much they produce.
So if they produce more for a given period and thus make more money, they can pay back more, and vice versa. It’s because of this flexibility that more OEMs prefer this pay-per-use structure over traditional financing methods.
The four biggest hurdles
The four main hurdles I’ve seen OEMs encounter when making a switch to pay-per-use are:
The need for a proper data infrastructure to collect, transfer, store, and display their equipment usage data, as discussed earlier.
The risk if their customer fails to pay off their debt.
The ability to restructure internal invoicing systems.
And the most significant hurdle lies with sales teams having an awkward time adjusting to a new commission structure.
Pay-per-use business models slightly collide with ith the typical sales mindset of pricing the highest to earn the best commission. I completely understand the frustration of having to adjust their current commission system, especially after relying on it for such a long time.
It might be tricky to calculate your earnings in the short run, but in the long term, sales teams have the potential to unlock higher returns.
Depending on the incentive program, sales teams can benefit, for example, by commissioning off a manufacturer's monthly installments, or the company can offer an attractive annual bonus.
I’ll leave that creativity for the OEM, but those are just a few examples I’ve seen other companies implement.
How can you adopt pay-per-use models without transforming your entire business operations?
It would be best if you found a solution provider that can immediately get you your money without having to get too involved in the pay-per-use implementation process. With our solution, you can provide pay-per-use without changing the entire inner-workings of your business.
OEMs receive the full payment upfront from linx4’s financing partners, and the manufacturer works with the bank to facilitate repayments. You get all your money while we take care of your entire pay-per-use activities.
What to look for, who benefits, and how to get started
For any original equipment manufacturer who is looking into pay-per-use business models, I highly suggest you look for someone who understands the ins-and-outs of your business at its core so that you receive the best solution to manage your machine data, finance your equipment, and sell more product.
The right pay-per-use provider will avoid any internal transformations when integrating into your current system and make you feel confident along every step of the way.
You benefit by differentiating yourself from competitors since flexible financing may pose as a USP for your business as a whole. Additionally, you increase your equipment sales, all the while helping your customers propel their business further. Finally, you position yourself as a market leader by adapting to new customer demands and adhering to future financing standards.
What about your customers? How do they benefit from a pay-per-use model? Well, for starters, they experience lower upfront capital investment as well as high financial stability. Additionally, they benefit from a more transparent financing cost structure.
Moreover, a flexible repayment system enables a plethora of tax benefits and cash flow and balance sheet optimization.
You can get started today by reaching out to your current financing partners and asking them to explore this option. Also, feel free can to shoot me a direct message as I’m happy to answer any further questions you may have about how, to begin with pay-per-use business models.
There’s no harm in learning more about your industry and understanding what trends are quickly coming its way. If you happen to be put in a situation where you need to implement a pay-per-use model, I hope you have a better idea of what you should do.
Finally, I can’t wait for next week as I’m looking forward to being on stage and meeting attendees and other industry leaders at Gainer Festival. If you happen to be at the festival and want to chat, please reach me at my:
Mobile: +43 676 9406970
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This post was originally published on Paul Bruckberger's LinkedIn profile.