The world around us is constantly changing, and one significant change we see today with most companies is the purchasing trend shifting from huge upfront investment or capital expenditure (CAPEX) to a flexible, pay-as-you-go, operational expenditure (OPEX).
More and more companies are finding the OPEX model to be beneficial and are consciously making their buying decisions. Instead of purchasing new assets outright, they are considering if they would need them in the long-term or for a specified duration, for which they can pay. Based on their needs and usage of the asset, they are choosing the best financial solution. Today, this is commonly known as pay-per-use.
Companies are looking for ways to keep up with the demands and trends in the market. DynaRent being a flexible and scalable option, the pay-per-use system makes it easier for them to choose what they want, and thus keep in line with the market.
Pay-per-use model benefits for its users
As you can tell, the pay-per-use model does help organizations improve their bottom-time. Here are is a list of top benefits it offers:
Payments are based on the actual usage of the asset. This relieves the users from the burden of paying hefty upfront costs as they can pay only for what or how much they use.
No unexpected costs
Services are included for most of the pay-per-use models, and the supplier is responsible for the uptime and availability of the asset(s). The users will not encounter any unexpected costs, such as high charges for repairs and maintenance.
No Residual value risk
Residual value is the value of an asset after the end of its lifecycle or lease period. Since the user companies do not own the asset, they will be free from the obligation of its depreciation. Therefore, they do not have to worry about the residual value risk.
As the pay-per-use model does not require the users to pay any upfront fees, they don’t need any capital to start using the assets.
Resistant to seasonal influences
Many companies make most of their turnover in a limited, specified period and may not need assets before or after that peak business time. For instance, a beach club makes most of its money during the summer (its peak season).
With pay-per-use, the users will face zero or negligible impact of the adverse effects due to seasonal influences or under-utilization of assets.
The above reasons help in scaling the usage of an asset up or down, as per the organization’s requirement. Thus, it offers more flexibility in their buying decisions.
Most pay-per-use models come with tracking of asset usage. Therefore, it gives the companies better insights into the usage and allocation of the assets.
Challenges for supplier, rental & lease companies
It is clear that the users of the pay-per-use model have a lot to benefit from it. However, what about the supplier, rental, and lease companies? What are the challenges you will face with these new market demands?
While they mostly face financial and operational issues, here are the main challenges for the supplier, rental, and lease companies:
As a supplier, rental, and lease company, you need innovative and flexible software solutions that can keep up with these changing demands. For instance, you must offer the ability to track the usage of a product.
IoT (Internet of Things) can be an enabler for this and offers new possibilities. For example, a black box in a fully-automated car can notify the leasing company about the mileage of the car, once in every week. The leasing company can charge the customer based on this reading over a specified period.
The product is not sold directly and doesn’t generate instant turnover as selling does. The revenue, in case of pay-per-use models, comes in installments over an extended period. And, the product needs to be financed during this time.
The supplying, renting, or leasing companies will need extra capital to fund all these products for pay-per-use models.
As we know, the customers do not pay on a one-time basis in pay-per-use—the payment is spread across the period that they choose to use a product. Collecting payments is not an easy job, and with payments divided into parts, you will need to ramp up their collections department.
With services included in most pay-per-use models, your company will stand responsible for the availability of the product. This will put extra pressure on your service department to keep all products up and running.
Pay-per-use model benefits for supplier, rental & lease companies
As a supplier, rental, or lease company, you will need to overcome the challenges if you want to offer the pay-per-use model, which is what your customers demand right now. The benefits this model has to offer you are far more enormous than the challenges involved.
You simply need to execute the pay-per-use model in the right way to ensure that it can highly contribute to your revenues.
Not every customer will have enough capital or will want to spend money to buy the products. Pay-per-use will lower the threshold for your potential customers and will let them decide sooner to take a product on a pay-per-use basis.
Meeting new customer demands
The pay-per-use system is demanded by the market. Ignoring this new market trend can result in a decrease of the turnover and, consequently, the profitability of the company. It’s more or less a necessity to follow this trend in your offering, and it can help you meet the demands of a diverse customer base.
Higher service revenues
Most pay-per-use models include services in their pricing. This means that all service and maintenance will be executed by your own service department, driving extra service revenues. Besides that, there is a possibility that satisfied customers will also request you for repair and maintenance for other products that they have purchased elsewhere.
As mentioned under the second point, follow this trend is a requirement. While it offers challenges, it also provides a huge competitive advantage. If you neglect this trend or delay to introduce pay-per-use, you risk falling behind your competitors.
Pay-per-use models will help retain customers. The pay-per-use model gives you insights into the duration of the contract with a customer, hence you know the right timeframe in which the customer must be contacted to replace the product. This will give you an advantage you’re your competitors and will help in retaining the customer(s).
Besides, the pay-per-use model offers benefits even for the customers. For instance, the data shared with the customers helps them improve their product usage and makes it less capital-intensive.
With the asset usage data being collected, the companies will have far more insights into the way their products are used. This is valuable information for your customers, and when you share it with them, you help them gain a competitive advantage. Plus, you gain customer loyalty.
How can To-increase help?
As we now understand, the pay-per-use model is what the customers are demanding. And, you need to adopt this model to ensure you are meeting the rising demands and customer satisfaction. It offers benefits and new possibilities for both suppliers and the customers.
While your customers can benefit from this as a flexible and scalable solution, you can widen your revenue opportunities by offering what your customers need exactly.
At To-Increase, we support different ways of charging your customers for the rented or leased products. For instance, you can charge a customer based on:Get in touch with our experts to discuss how To-Increase can help with both the options. We’d love listening to what your business challenges are provide you a tailored demonstration on how we can help.
1. the hours they used your product
2. a combination of fixed monthly rate and hours of usage.
Get in touch with our experts to discuss how To-Increase can help with both the options. We’d love listening to what your business challenges are provide you a tailored demonstration on how we can help.