It is an economic model that is still very rare and quite original. It consists of providing a customer with a good or service at a low or zero price and to be remunerated by taking a commission on the savings made thanks to this product. This model is therefore only possible under certain necessary conditions. First of all, the company wishing to use this model must have found a product that is more efficient than its competitors in order for it to make savings.
Secondly, it is necessary to be able to keep up with a long time lag between production cost expenditures and commission income over a certain period of time. This model is often used in a partnership or by municipalities or public agencies to guide people’s behavior. This model also allows SMEs to enter markets where competitors are already well established and provides incentives for households that are willing to take action but cannot afford to do so.
Advantages for the seller
This model generates trust and therefore facilitates the acquisition of new customers. It is therefore a very interesting way to enter a market and to get rid of competitors who are already well established.
This model can also encourage a small company to invest in an innovation that it believes to be revolutionary because the company knows that if it manages to be better than its competitors it will be able to sell its product thanks to this model.
Benefits for the customer
The customer has almost nothing to lose in this model. They receive a product at a price well below its value, which allows them to save money. Moreover, he does not have to advance the costs related to the production of the product. This model removes the price barrier at entry.
Disadvantages for the customer
The customer becomes somewhat committed to the company in the medium to long term, since it is over time that the model becomes profitable.
– To be able to measure the savings made to apply the commission and to prevent the client from disappointing. For this reason, this model is not applicable to every market. It can only work for goods or services for which customers pay according to their consumption.
– Find significant capital and investment capacity to start production at the beginning of the project.
– Have good communication/marketing to publicize your offer and to generate trust and confidence and ensure that the savings achieved will be greater than the costs to be paid.
– Technological progress is very fast so it seems complex to guarantee energy savings in the long term with the same technology. However, repayment contracts based on the savings achieved require a certain minimum duration
Evolution over time
In 1998, Kayla Ente won the sustainability award from Nuan, a Dutch energy supplier, for designing a financial system to promote renewable energy. This model was later called Pay as You Save. Kayla Ente later became the founder and director of BHESCo, Brighton & Hove Energy Services Co-op, which was called Trisolar when it was established in 2009. This energy company has implemented a Pay as You Save strategy.
The Pay as You Save scheme has also been used in Great Britain with the launch of the Green Deal in 2013 by the British government. Great Britain wanted to encourage the development of energy efficiency in the homes of its citizens and has therefore set up a Pay as You Save system to encourage British citizens to make the effort to install more environmentally friendly materials and objects. This Green Deal policy has not been a great success and the British government stopped its investments in 2015, but it has shown that this Pay As You Save strategy is perfectly adapted as a trigger for the green revolution by public authorities.
With the growing importance of sustainable and responsible energy, the pay as you save model is becoming more and more relevant. It is indeed a means used to encourage people to change their practices in order to adopt more environmentally friendly habits.
Value chain & types of stakeholders & customer journey
– the producer
– the customer
– the investor who makes capital available to start production: often public bodies such as municipalities or governments.
– The Indian company Energy Efficiency Services Ltd (EESL) and its UJALA programme (Unnat Jyoti by Affordable LEDs and Appliances for All) is a successful example of the pay as you save model. EESL led the project to develop the use of LEDs in India to promote more responsible energy. Due to the poverty of the society, EESL set up a pay as you save model to finance this project which led to the installation of 370 million LEDs. EESL is now expanding internationally and is using this business model to promote a shift towards clean energy.
– Ouachita Electric Cooperative (USA) has a program to finance energy efficiency improvements, called HELP PAYS (Pay as You Save).
– City Energy Network Ltd
Some key figures
Case study: renewal of the bus fleet in Santiago with electric buses instead of diesel buses, which are more polluting.
Each dollar of COUNTRY subsidy mobilizes more than $70 of private investment in electric buses, far exceeding the leverage of equivalent subsidies from non-COUNTRY programs. A $568,000 grant would catalyze a $23 million investment in the purchase of 100 buses that cost a total of $42 million.
As an example, the same amount without a COUNTRY could cover the full initial premium for just 1.4 buses, and directly covering the additional initial costs for 100 electric buses would cost a grant provider over US$25 million. Thus the implementation of a COUNTRY strategy reduces this subsidy requirement by 97%.
Products or services adapted to this model
– Energy-related products
– Products with high initial costs
Sectors of activity using this model
– Energy suppliers. E.g.: Promotion of solar energy: The Solar Saver Pilot initiative conducted in Hawaii in 2007 by the Sunrun company to promote the installation of solar panels on the roofs of households. Midwest Energy did the same in 2008 with its How$mart initiative (Kansas, USA) to improve energy efficiency. Windsor Efficiency PAYS highlighted a water conservation program launched in 2012 that is still relevant today.
-Mobility and transport: electric buses
A loan from banks for entrepreneurs who want to develop their projects. Repayment with a certain percentage of the profit over a number of years following the loan.
Can this business model be extended to goods or services other than those for which clients pay according to their consumption? Could one sell a car, advertised as the world’s most fuel-efficient car, by taking a commission on the savings made on petrol fill-ups, even if it means charging a certain amount at the time of purchase? Often cars are bought on credit, so instead of paying back the loan every month, the household would pay part of the savings made on a very fuel-efficient engine. On average the French spend 1500€/year on petrol.