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Lower sales, higher revenues 

Sell fewer machines!

April 24, 2018

Manufacturers should stop merely selling machines or systems. With a product-as-a-service business model, they can increase their market share, secure ongoing sources of revenue, and bind customers to themselves for years.

Manufacturers almost always sell machines or systems in a one-time transaction today. Sometimes they also conclude a maintenance or service agreement with their customers. While this has worked well for a long time, it bears risks in today's world:

  • The high investment cost for machines and therefore the capital commitment prevents the decision to buy – so a competitor wins the race and gets the customer.
  • Market players with a more pronounced service orientation and expertise obtain the service and maintenance agreements – the revenue is lost. So is the close, long-term customer relationship.
  • Competitors with customer-oriented billing models are gaining market share – traditional manufacturers are losing importance in the market.
Weniger verkaufen, mehr Umsatz

What is Product-as-a-Service?

A product-as-a-service-(PraaS) business model is the answer to the aforementioned problems: Manufacturers combine physical products or systems with the required services and flexible billing models. The one-time transaction is replaced by a lease agreement with regular billing based on time or other quantitative measurements. Rather than owning the machine or system, it is provided to the customer for use. The customer no longer has to look after anything.

What are the positive effects of PraaS?

  • The price and the capital commitment are eliminated as barriers to the purchase decision – creating an opportunity to increase the market share
  • The relationship with the customer becomes closer and lasts longer
  • Instead of one-time proceeds, a long-term revenue stream is created – ideally over the entire lifecycle of the machine or system, but in any case for many years.
  • The provider of a PraaS model positions itself in the market with a clear USP

How to prepare for the product-as-a-service offering

Manufacturers who want to offer a PraaS model supplement their business processes – or change them entirely. A strong service orientation and organization are just as important as changes in sales, billing, and bookkeeping. And it is inevitable to implement a well working asset management. Important: Manufacturer IT systems, especially ERP systems, are not designed for the PraaS business model. You have to learn how to handle flexible billing models that fit the needs of customers. A product-as-a-service offering is also a step into the world of the Internet of Things(IOT). Monitoring is required in order to not only offer customers monthly billing, but billing according to the actual use of the machine or system. Recording punching or pressing cycles, strokes, revolutions, or concrete usage times in minutes or hours on the machine not only lays the foundation for subsequent reliable billing, but also for predictive maintenance. This ensures customer satisfaction in the long term.

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Jörg Lüthge

Business Development 
Rental & More – Sales
+49 551 490 2235

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