Deriving revenues through the leasing model typically involves three parties: the seller, the buyer (lessee) and the financier (lessor).
In exchange for payment, ownership of an item (usually equipment) is transferred from the seller to the lessor. The lessee then contracts with the lessor for the use of the item in exchange for a periodic fee. The seller may or may not retake ownership of the item once the leasing contract has ended.
Leasing arrangements occur most frequently in transactions involving the exchange of costly physical goods. Clean technology and medical devices are two markets in which leasing arrangements for the use of equipment are common.
“Big-ticket items” such as capital equipment, medical diagnostic equipment and devices, manufacturing equipment, and physical infrastructure are examples of goods that may generate income through leasing arrangements.
Because of their long duration, leasing arrangements create ongoing relationships between sellers and lessors. Often a service agreement will exist alongside the leasing arrangement requiring the seller to provide support to the lessor throughout the term of the contract.
Sellers of leased equipment depend heavily on relationship-building and high-quality customer service. Because contracts extend over long periods, repeat sales to the same customer, often a large health-care, industrial or energy network, is key.
Quality control matters a great deal because leasing opportunities only succeed with equipment items that retain residual value and have demonstrated reliability and durability over time.
Leasing revenues can help the seller meet the need for early customers and early revenues, but leasing comes at the cost of full revenue potential since revenues are split between the seller and the lessor.
Operating with leasing revenue requires salespeople to focus on generating repeat sales in the form of lease renewals or expanded leasing arrangements. Also important to watch is the cost of financing, since leasing of technology typically requires the participation of a financial backer.
Leasing is a useful model for expanding the market because it enables the sale of expensive items to customers who don’t want to assume the risk of an outright purchase, or can’t afford to pay a large up-front sum. On the other hand, the high transaction and processing costs associated with leasing mean that it is only an appropriate model for high-value items. Leasing agreements can also be complex, and require that all parties have a clear understanding of the ownership and payment obligations when a leasing contract is terminated early or is broken.