As-a-service business models without the crash landing: Pricing and risk models for manufacturers

As-a-service models sell performance instead of equipment: the customer pays on an ongoing basis, often by usage (pay-per-use) or by outcome. For customers, the promise is attractive: no large upfront investment, payment based on actual value. For manufacturers, it sounds like recurring revenue and close customer relationships. Both are true, but only if the model is built properly.

Why customers want usage-based models

• Opex instead of capex protects budgets and the balance sheet.
• They pay for what delivers value: hours, units, delivered output.
• The risk of downtime or poor efficiency sits with the manufacturer.
• Capacity is easier to adjust.

What manufacturers underestimate

Whatever the customer hands off, the manufacturer takes on:

• Utilization risk: If the customer uses less than planned, revenue drops while costs stay the same.
• Financing: The equipment often remains the manufacturer’s property and has to be pre-financed.
• Operating costs: Maintenance and repairs are at the manufacturer’s own expense.
• Metering: Disputes over meter readings or results erode trust.
• Sales and finance: Commissions, revenue recognition, and planning work differently than with one-time sales.

The right billing metric

Billing can be based on operating hours, units produced, output delivered, or energy saved. A good billing metric meets four criteria: It reflects the value to the customer, can be measured reliably, is easy to understand, and is hard to manipulate. In practice, a combination of a base fee and a variable component often works well. The base fee covers fixed costs, and the variable part shares the success.

Share risk instead of carrying it alone

Hardly any manufacturer should carry all the risk alone. Financing partners handle the pre-financing, insurers can cover performance guarantees and downtime, and service partners ensure fast response on site. The earlier these partners are built into the model, the more robust the offering becomes. More on this in our article Digital services rarely succeed alone.

Calculate, test, scale

1. Run the model through scenarios: unfavorable, conservative, dynamic.
2. Start with a proof of value at two or three customers who are open to new ideas.
3. Test the assumptions on usage, costs, and willingness to pay against real data.
4. Adjust pricing and contracts, then scale.

Bottom line

As-a-service isn’t a price tag. It’s a different business model. Companies that think through billing, data, financing, and risk cover together win customers who stay and revenue they can plan.