From Capex to Opex – The Art of Recurring Revenue Business Models in Industrial B2B
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Contacts
Dr. Thomas Trautmann
Partner / Germany
Hamburg
Point of view
By Dr. Thomas Trautmann, Dr. Robert Schenk
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.
