Companies are being cautious with their dollars right now. This is perfectly understandable: The COVID-19 pandemic has taken a large bite out of many industries’ financial standings. Unfortunately, this tenuous financial ground has tempted many companies to delay their much-needed lighting retrofit projects.
Is there anything lighting retrofit companies can do, other than try to wait out the storm and hope for better days on the horizon?
Fortunately, Lumens as a Subscription (LaaS) offers an exciting new way for retrofitters to increase LED adoption. How? By mitigating nearly all end user objections around capital, maintenance, accounting, timeframe, and even commitment. And now, these benefits could turn a skittish market into one ripe with opportunity.
Let’s explore how.
What Is Lumens as a Subscription?
Defined, LaaS is a monthly subscription agreement that includes the cost of lumen supply system, installation of the system, and ongoing maintenance of the system across the term of the subscription.
As an example, our own Lumens as a Subscription program at Linmore LED includes terms of 10 years, divided into two segments. We chose 10 years because it dovetails well with our warranties.
The opportunity in LaaS is growing and expected to keep doing so. Navigant Research has revealed that in 2017, $663 million of LED projects were done under an LaaS model. That number is expected to reach $2.6 billion by 2026.
Why does LaaS appeal to so many customers? It turns out this model can bring several important advantages.
The Benefits of Lumens as a Subscription
It’s possible that many of your customers can benefit from being offered LaaS, including:
- Companies that want to completely outsource their lighting. Maintaining lighting systems can be a nuisance. In particular, it can be difficult to buy parts for older LED lighting fixtures. Several manufacturers have gone out of business, and many products have been discontinued. Outsourcing this maintenance can save your customers from having to deal with these headaches down the road.
- Companies that have a portfolio of properties and want to retrofit them all. LED retrofit projects can consume a lot of capital. The LaaS model spreads the cost of the project out over time, which preserves cash and enables your customers to get their whole portfolio done.
- Companies that want to profit from upgrading their lighting. Your customers might believe it will take years to realize a net positive result from upgrading their lighting. However, LaaS arrangements create positive cashflow from the start. Additionally, the subscription cost can be treated as an operating expense – which means it stays off the balance sheet and won’t negatively impact any existing debt covenants your customers may have with their banks.
- Companies that want the safety, morale, and productivity new lighting can bring. We know that most facilities are underlit. This poses serious safety risks and places employees at a higher danger than they should be. Offering an LaaS solution enables these customers to correct these lighting problems in the plant while also generating some positive cashflow.
As you can see, there are plenty of opportunities out there when it comes to LaaS. But what if your customer is still not quite ready to sign up? Happily, introducing flexibility into your LaaS agreement can help uncertain customers say yes with confidence. First of all, at every anniversary date, be sure to give your clients options. At Linmore, here are the options we offer our customers at the end of their subscription term:
- Start a new subscription agreement with the latest LED technology. This can potentially provide even more positive cashflow while also giving the customer new lighting.
- Extend the subscription. We can maintain the existing lighting, or we can do an agreed-upon amount of upgrading and re-lamping.
- Take ownership of the lighting. Customers can opt to end the subscription and take full responsibility for their lighting system.
Other Considerations Around Lumens as a Subscription
There are several other things to think about when it comes to successfully implementing LaaS into your offerings:
What if the customer’s facility lease is up and they’re moving?
The contract is a multi-year commitment, so as long as the new tenant is credit-worthy, the best course of action is to transfer the subscription to the new tenant. Once the new tenant has completed the term of the agreement, they can choose to renew, extend, or cancel it at that point.
What if the customer wants us to maintain products we didn’t sell?
Part of our agreement is that our lighting must be used for every application where we have a suitable product. If there’s an area where we don’t make a product, that is fine, but we will only maintain the SKUs that we have made.
What should our maintenance include?
We agree to do three visits per year to maintain our customers’ lighting. This includes labor, lifts, and whatever else is needed to access and maintain those lights. Maintenance is provided by a local, licensed electrical contractor. It makes sense for lighting retrofit companies to partner with trusted local contractors who are familiar with the facility. We also partner with energy service companies (ESCOs) who may not have a local presence at every facility they serve, so again, a local contractor is a must.
How should we handle rebates?
The best way to handle rebates is for the contractor or ESCO to take them as payment directly from the utility. That allows us to generate more positive cashflow for the client.
Across our industry, many things are up in the air right now, and few people know exactly how our economy will look over the next while. For lighting retrofit companies, offering Lumens as a Subscription is a win-win proposition: It allows you to diversify your offerings and create a consistent stream of revenue, while allowing your customers to enjoy new, efficient lighting in an incredibly cost-effective manner.