Pay-per-service unit is a type of service compensation model with payment tied to the quantity or quality of service the customer receives. Pay-per-service unit includes subcategories like pay-for-performance and pay-per-use. Product manufacturers may consider reevaluating their revenue model from single-transaction sales to a relationship-based service contract.
In the pay-per-service unit model, the product manufacturer or retailer is typically responsible for installation, maintenance and take-back of the product. By tying the service price to performance, it encourages the provider to give the best service to its customers.
Industry examples of pay-for-performance schemes include:
It is important to establish a performance metric that aligns the service provider and receiver’s objectives.
Michelin Solutions, one of Michelin’s business units, offers a Fleet Tire Management solution called EFFITIRES™ in which customers pay a monthly fee for traveled kilometers (or miles) instead of tires. Today more than 320,000 vehicles are under an EFFITIRES™ contract and Michelin expects to double the revenue of services and solutions by 2020. This alteration of the existing business model from product- to service-based offers turns customers into “long-term partners” and generates improvements to fleet efficiency, productivity and environmental impact.
Because of this, Michelin Solutions improves its value proposition to customers and consequently strengthens their loyalty. The solution maximizes tire usage and therefore its life expectancy, by ensuring tires are used – in compliance with the law – to the last possible millimeter of rubber, then regrooved and retreaded. Michelin established this new business line without compromising its core business of manufacturing and marketing tires.