.webp)
Key Takeaways:
- Pay-per-use (PPU) is a flexible pricing model where customers only pay for what they use with no upfront purchase required.
- Ownership stays with the provider, reducing risk and responsibility for customers while increasing service quality.
- IoT and smart technology make it easier to track real-time usage, enabling the growth of Product-as-a-Service (PaaS) models.
- Businesses benefit from increased customer loyalty, lower entry barriers, and valuable usage data that fuels product innovation.
- Customers prefer PPU for its affordability, transparency, and hassle-free experience, especially in sectors like utilities, appliances, and mobility.
- PPU is ideal for companies with the infrastructure to deliver, monitor, and support products and services at scale.
- To succeed with PPU, companies must evaluate usage metrics, profitability thresholds, and test value propositions before full rollout.
---
The digitalisation of products and services has gone into hyperdrive causing huge shifts in customer behaviour. As a result, a growing number of companies are exploring new consumer-focused business models, like "pay-per-use (PPU)".
The subscription model, popularised by D2C brands, has been a favourite among corporations during the last year with companies like Disney, L’Oréal and Comcast all making their way into the arena. Now, a rising trend amongst the D2C offerings is the Product-as-a-Service (PaaS) model, combined with a pay-per-use system. So, what’s behind the trend?
To help answer that question, let’s take a closer look at how the pay-per-use model works, its benefits and how it can help your business.
What is pay-per-use and how can it benefit your business?
Pay-per-use (PPU) is a pricing model where customers only pay for what they use. Instead of buying a product outright, users pay based on actual consumption, making it a flexible, low-commitment option. This model is increasingly popular among businesses aiming to boost customer satisfaction and loyalty.
How does pay-per-use work?
Under the pay-per-use model, the ownership and responsibility of the product/service lie with the company itself, and the customer pays a fee for usage on demand. Many customers prefer this model because they like the idea of paying only for the services they require and use. In many cases, they also end up receiving better service because the manufacturer has a greater interest in providing a product that lasts.
Pay-per-use is not a new thing. Utility companies have been using it for years because it enabled them to track usage. Now, with the rise of IoT, tracking the usage of products has become easier, more accessible and more accurate than ever. This new data flow has made pay-per-use a more viable option for industries that previously didn’t have the tech capabilities to gain value from it.
An example of pay-per-use in practice
A good example of a company that is successfully implementing pay-per-use is Homie in the Netherlands:
Homie enables users to order a washer, dryer or dishwasher online, get it installed for free and only pay for the usage of each appliance (with a low monthly minimum).
Customers can choose between “light” or “heavy” contracts based on their washing habits and switch between the two twice a year. The minimum monthly fee covers any additional costs like maintenance and repair.
“Homie wants to be your friend around the house and guarantees worry-free washing and drying.”
Homie’s goal is to provide an affordable pay-per-use solution for washing machines and dryers. By providing their customers with insight into their usage, they want to stimulate more energy-efficient washing.
What are the benefits of the pay-per-use model?
The pay-per-use business model has a lot to offer for both companies and consumers.
Company benefits:
Product evolution
The pay-per-use model makes it a lot easier for companies to track usage, giving them a better idea of how customers interact with their product or service. Knowing what customers like and dislike makes it easier for companies to improve, build personalised options and even create new offerings.
Increased market share
Pay-per-use lowers the entry barrier for a lot of customer segments by minimising the entry costs. Having to pay a higher price to buy/rent a machine that you’ll hardly use can discourage customers. In contrast, the “pay as you go” pay-per-use model can convince customers to start using a given product or service.
Customer loyalty
The user connection with the company becomes more service-focused instead of a one-time-purchase interaction. This makes it less likely for users to switch to competitors. On top of that, the value of the product increases with added perks like installation, maintenance, and support which create more value for the customer.
Customer benefits:
Fewer responsibilities
PPU transfers the risks of ownership and the responsibility of maintaining the product to the company as part of the offering.
Lower costs and more transparency
The cost of products and services becomes more accessible and transparent to customers because there is no large initial payment required for simple access. Instead, it’s a flexible, easy to monitor monthly cost, based on actual usage.
Constantly improved products and services
To fully make this model viable, companies are relying on customer loyalty. This means that they’re constantly improving their products and services based on customer data.
Frequently Asked Questions (FAQ)
Q. How is pay-per-use different from a subscription model?
Subscriptions charge a recurring fee regardless of usage. Pay-per-use charges only for actual consumption, offering more flexibility and cost control.
Q. Which industries are using pay-per-use models?
Common sectors include utilities (like electricity and water), home appliances, cloud computing, car-sharing services, and industrial equipment.
Q. What are the business advantages of pay-per-use?
Businesses benefit from recurring revenue, deeper customer insights, higher retention, and lower barriers to entry for new users.
Q. What technologies are needed for a pay-per-use model?
IoT sensors, smart meters, usage-tracking software, cloud-based billing platforms, and service infrastructure for delivery and support.
Q. How do companies make money with pay-per-use?
By accurately pricing per use, optimising cost per unit, and scaling based on high-usage patterns and customer lifetime value.
Q. Is pay-per-use more sustainable?
Often, yes. It encourages efficient use of resources and allows providers to maintain, upgrade, or recycle products more easily.
Is the pay-per-use model right for your business?
In order to successfully leverage the benefits of the pay-per-use business model, you need to have access to three critical service pillars:
- Hardware & software - You should have access to a pool of hardware and software that is able to generate all the necessary data. This is crucial.
- Services - There should be a network in place to deliver, install, and maintain the product on demand for the customer.
- Protection - In case of an emergency, the company should be able to help the customer whenever it’s required.
In addition to having your three pillars in place, you should also consider the following questions:
- What is the cost per use to our business?
- What volume of use is required to break even?
- What is the minimal offering that would be compelling enough to have the customer buy-in?
- Is there a value proposition that can be easily tested and implemented?
- Are you solving a customer problem more effectively through your pay-per-use offering?
Once you have the answers, you’ll have a much better idea of how the pay-per-use model can benefit your business.
----
Today’s corporate landscape is more competitive than ever before. Stay ahead of the game by finding new ways to find sustainable revenue streams.
.svg){kind=icon}
