The Alignment of Cost & Revenue

|May 9, 2022

Life isn’t clockwork. There are peaks and valleys in everyday life, and they also exist in business activity and revenue. Businesses have natural cycles and a period commonly referred to as the “busy season” when revenue and equipment activity is up. From agricultural companies that harvest in the fall to toy manufacturers that produce and sell more inventory around the holidays, businesses experience organic high points. But these companies pay the same amount for the same equipment and machinery all year long—even though they generate less revenue during certain times of the year. Ask yourself: what if I could align cost and revenue and pay less for equipment when I use it less?

Take marine terminal operations as another example. Port operators must have the necessary equipment available and ready to operate when a cargo ship arrives. Various unpredictable circumstances such as weather conditions, customs issues, port congestion and ever-changing consumer purchasing behavior directly impact equipment use. Therefore, the port operator might have equipment sitting idle or may have to obtain more units to perform the job efficiently – either way they are paying for the equipment regardless of usage. What if the port operator could align the cost of the equipment to when a ship arrives through variable payments based on usage?

You’re the expert. You know your business in and out, and you have a thorough understanding of your very own peaks and valleys.

Now, let’s address the unpredictable. 

If the Coronavirus pandemic taught us one thing, it’s to expect the unexpected. In March 2020, when factories and facilities shut down to help slow the spread of the virus, payments for machinery and equipment didn’t halt along with operations. Instead, they continued to drain capital for many companies that were simultaneously facing significant drops in revenue. Many businesses sought help restructuring their traditional leasing or financing payments, as the assets were not generating revenue.

It doesn’t have to be a global pandemic to be “unexpected.” Unforeseen circumstances come in various forms, such as labor shortages, inclement weather, supply chain issues, and road closures. Something that impacts your bottom line could happen at any point on any given day, and no amount of insurance can protect operations from all events.

These sudden interruptions don’t have to come as a shock to your spending, though. Revenue can be out of your hands at times, but if assets can’t make you money—whether due to a seasonal lull in business or abrupt operational shifts— wouldn’t it be beneficial to have payments that fluctuate with your business’ activity?

Shifting the Paradigm

Life is full of the unexpected, so it’s becoming increasingly important to build your business on a flexible foundation and protect yourself from financial pitfalls. The way you’ve always financed your equipment and machinery may have made the most sense for your company at one point, but times have changed, and traditional financing doesn’t have to be the only truth for your business.

Many business leaders are now seeking alternative funding options, like Pay-per-use. In a usage economy, Pay-per-use models allow companies to pay for what they use of equipment and machinery. Therefore, businesses spend more during the busy season, when equipment and revenue are booming, and pay less during the offseason, when equipment use and revenue are lower. And when there’s an unanticipated shock to operations, Pay-per-use structures can help mitigate serious liabilities, like fixed costs when revenue is unexpectedly down.

Align Usage to Cost and Cost to Revenue

If you’re interested in achieving closer alignment between the cost of revenue-generating assets and revenue itself, DLL’s Pay-per-use models may help.

DLL is a leading enabler of Pay-per-use solutions for businesses with outcome-driven assets. We see an innovative future for B2B assets and are driving the servitization revolution.  Ready to chat about your unique business needs? Contact DLL’s Pay-per-use teamPay-per-use is available in Canada, United Kingdom and United States as of published date.

Matthew Jennings

Matthew Jennings

Head of Pay-per-use Solutions, Canada

For more information on Pay-per-use please contact me.

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