A circular economy is an alternative to the traditional linear economy, in which resources are used once and then discarded. However, in this type of economy, resources are kept in use for as long as possible and then recycled or reused.
Circular economy business models are becoming increasingly popular as companies look for more sustainable ways to operate.
There are many different types of circular economy business models, each with its unique characteristics.
The five most common types are:
1. Product as a service
One of the most popular circular economy business models is a product as a service. Companies offer their products as a service, rather than selling them outright. Meaning, customers pay to use the product, rather than own it.
For example, instead of selling a lawn mower, a company might provide a lawn care service that includes the use of a mower. And that’s what customers pay for.
It has several advantages. First, it allows companies to keep their products in use for longer periods of time, as users are more likely to return them when they’re finished using them. Second, it gives companies a more predictable revenue stream, due to a recurring subscription model.
How to Implement:
To implement a product-as-a-service business model:
- regularly develop a subscription-based billing system – to charge customers on a recurring basis, you’ll need to set up a subscription-based billing system.
- focus on customer retention – to survive and thrive under this model, you need to focus on retaining the customer for as long as possible.
2. Pay-per-use
Another common type of circular economy business model is pay-per-use. Under this model, users are only charged for the resources they actually use.
For instance, instead of paying a flat fee for electricity each month, customers would pay for the exact amount of electricity they used.
There are several benefits to this such as improved resource efficiency and lower costs for the users. It also aligns well with the philosophy of the sustainability, as it encourages consumers to use only what they need and nothing more.
How to Implement:
To implement a pay-per-use business model:
- Do some research – you’ll also need to research your industry and understand the typical usage patterns for the resources you’re selling.
- Develop a pay-per use pricing strategy – develop a pricing strategy that charges customers around the usage patterns and how much resources they’re using.
- Monitor usage – you’ll need to have a system in place to track customer usage so that you can accurately bill them.
3. Product life extension
Product life extension is another popular circular economy business model. Companies focus on extending the life of their products instead of selling them and replacing them with new ones. To give you an example, imagine a company that sells cars.
In the traditional linear economy, the company’s business model would be to sell as many cars as possible. In a product life extension model, the company’s focus would be on keeping those cars on the road for a long period.
Now, there are several ways to extend the life of a product, such as a repair, refurbishment, and remanufacturing. By focusing on improving, fixing the existing products, companies can keep their products in use for longer and reduce the amount of waste they generate.
How to Implement:
To implement a product life extension business model:
- focus on quality – one of the most important things you can do to extend the life of your products is to focus on quality. By using high-quality materials and building products that are built to last, you can reduce the need for repairs and replacements.
- offer repair and maintenance services – another way is to offer repair and maintenance services. Customers can then keep their products in good condition and avoid having to replace them.
- remanufacture products – you can also remanufacture them. It involves taking used products and rebuilding them to like-new condition.
4. Product-service system
A product-service system is a type of circular economy business model where companies focus on providing a service, rather than selling a product.
For instance, instead of selling cars, a company might provide a car-sharing service. Customers can then use a car when they need it, without having to own one.
It has several benefits such as improved resource efficiency and lower costs for customers. It also encourages users to use only what they need and nothing more, which is aligned with the philosophy of the circular economy.
How to Implement:
To implement a product-service system:
- focus on providing a service – while trying to introduce this model, you need to first create a mindset of a product-service system.
- find ways to reduce resource usage – come up with ways and methods to decrease the resources your organization consumes.
- charge customers based on usage – finally, you’ll need to charge customers based on their usage.
That could be done by charging an hourly rate, a monthly fee, or a pay-as-you-go model.
5. Recycling and reuse
The recycling and reuse business model is where companies focus on recycling and reuse, rather than landfilling or incinerating waste.
When you recycle and reuse materials, you can keep them in the economy for longer and reduce the need to extract new resources. It helps to conserve resources, reduces pollution, and lowers greenhouse gas emissions.
How to Implement:
To implement a recycling and reuse business model:
- prioritize recycling and reuse – create a mindset of prioritizing recycling and reusing. Meaning that, rather than throwing away waste, you should recycle and reuse it whenever possible.
- find ways to reduce waste – along with the above, you need to come up with methods to decrease waste generation.
- work with other companies – there are many recycling companies with sufficient expertise and experience that you can partner up with.
That could have steps like setting up a recycling program or working with a waste management company.
To conclude, circular economy business models are a type of business model where companies focus on closed-loop systems instead of the traditional linear model. If you’re interested in implementing a circular economy business model, you can do so by focusing on the above five types.