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From Capex to Opex – The Art of Recurring Revenue Business Models in Industrial B2B

Contacts

Dr. Thomas Trautmann

Partner / Germany

Hamburg

Dr. Peter Odenwälder

Partner / Germany

Hamburg

Point of view

By Dr. Thomas Trautmann, Dr. Peter Odenwälder, Dr. Robert Schenk, Melissa Gile

Summary of Key Points:

  • Instead of selling machines as a one-off investment, machinery manufacturers increasingly offer their machines based on an outcome-, output-, or time-based recurring revenue contract, thereby replacing CAPEX with OPEX from an operator perspective.
  • Recurring revenue business models are particularly attractive for industrial B2B players because they generate a 5-10x company value multiple per revenue compared to traditional business models, with underlying drivers being (1) higher growth potential, (2) higher margins, and (3) more stable, predictable revenue.
  • While connectivity of technological assets is not a prerequisite for this, it enables the execution of key functions such as real-time revenue recognition, performance monitoring and in many cases predictive maintenance.
  • To succeed in recurring revenue business models, four key areas need to be addressed: (1) The value proposition needs to be translated into a monetization model; (2) The operating model needs to be scalable; (3) Financial risks such as the holding of capital expenses and longer payback times need to be addressed; (4) A fundamental mindset and cultural shift needs to be addressed in developing and selling the business models.

 

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