10 physical goods companies that launched a successful subscription

And this is more than just the typical “razor and razor blade”model of scheduled replenishments. As manufacturers and product/solution based businesses look to reduce waste, go electric, and reduce costs, digital offerings are increasingly attractive.

However—and it’s a big caveat—your finance systems like your ERP must be able to support it. If Microsoft launched Xbox Live knowing it’d have to recognize all that subscription revenue with spreadsheets, it’d need 10,000 additional accountants. Just as the billing is recurring, so too must the accounting be. Which places a high burden on any ERP coded in the 1990s such as NetSuite, SAP, and Intacct, which cannot natively support subscription revenue.

But with the right systems and strategy , it can help you (adapt to changing customer requirements and)  improve profitability at a time when added margin has never been more important. 

This is the second part of a three-part series. Read why launch a subscription to build a case or how to launch a subscription for a step-by-step guide.

Examples of physical goods companies launching subscriptions

Any subscription must be part of a coherent strategy grounded in real customer need. Otherwise, there is risk in developing the service, hiring the staff, and accepting all the maintenance costs only to learn that customers like it—but not enough to pay. 

Further, you will need the AR and accounting infrastructure to handle that added revenue complexity. Depending on your ERP and billing system, that may be very hard—or surprisingly easy. 

What follows are 10 examples of companies that successfully launched one of the six types of subscription, and why it worked.

Caterpillar offers equipment-as-a-service 

Caterpillar sells an equipment-as-a-service offering where construction companies pay monthly fees for excavators and bulldozers instead of purchasing them outright. This allows those customers to avoid the large capital expenditures, allows Caterpillar to move more vehicles, and gives its sales teams cause to bundle in support services and telematics. 

Why we like it: By turning the physical equipment into a subscription line item, Caterpillar can better bundle services together on one consolidated statement. 

What’s risky about it: This requires Caterpillar to hold physical inventory. 

Coreweave rents graphics units

Coreweave is an AI company on paper, but really more of a financial services company. They rent AI equipment like graphical processing units (GPUs) en masse to AI companies, much like AWS sells cloud hosting. It’s the ultimate pick and shovel strategy and allows Coreweave to profit from the arbitrage. 

What’s risky about it: Coreweave really does hold that physical inventory and must find a way to add unique value, otherwise, there’s little stopping others from copying their model. 

Goodyear charges for tire by the mile

Goodyear serves delivery fleets that burn through millions of tires per year. By talking to customers, Goodyear learned that a fleet manager’s most painful days are when tires blow out, and it takes that truck out of operation. So Goodyear launched a subscription service where, instead of buying tires, fleets subscribe to “tires as a service.” Goodyear monitors data from every tire to send alerts, dispatch technicians, and remotely reinflate some tires. They claim that it can reduce unplanned roadside emergencies by 80%.

Why we like it: This is a real customer-first offering. It fixes an existing customer pain and positions Goodyear as an innovator. Competitors like Michelin and Bridgestone have copied their model.

Hilti offers tools on demand

Contracting work is seasonal. Equipment is forever. Hilti solves an issue and creates a better customer experience by allowing its professional customers to “surge capacity” and add tools for workers during busy periods, or when they land a big new project. 

Why we like it: This offering moves more product and at the same time, helps Hilti’s customers run sounder businesses. What helps their customers helps them, and conveys a sense that the manufacturer was “there for them” in a time of need.

HP sells per-page ink subscriptions

HP pioneered a subscription service where customers pay monthly based on pages printed rather than buying ink cartridges. HP automatically ships new replacement cartridges. This is a classic mixture of a replenishment and usage-based subscription, and a “picks and shovels” financial strategy. 

John Deere finances tractors with built-in maintenance

John Deere has experimented with equipment sale models much closer to a subscription than an outright purchase. Customers “purchase” the equipment but maintain a relationship with John Deere through an ongoing service fee, as well as software licenses for an equipment operations center, telematics, tech support, and more.

What’s risky about it: Farmer’s advocacy groups claim that John Deere wasn’t fully transparent about this model, and don’t like that they can’t always repair their own machines.

Omnidian sells solar “uptime” insurance

Omnidian initially managed commercial solar farms, but realized that the algorithm they’d developed to predict maintenance issues based on energy health and throughput had other applications. They began offering a consumer service whereby they install a remote sensor at the inverter. They can tell just from the signal when a squirrel has chewed on the wire, or when panels are nearing a breakpoint, and dispatch technicians. Customers pay a fixed monthly subscription in a return for a guarantee of a certain amount of power.

Why we like it: Omnidian takes advantage of its unique data to offer customers a service they could never achieve on their own. The more customers they acquire, the stronger the dataset and prediction, and the more financially efficient. 

Rolls-Royce offers a “per flight hour” engine sales model 

The ‘per-output-metric’ model isn’t new. Rolls-Royce offered "Power-by-the-Hour" as early as the 1960s, which it now offers under the name TotalCare. It effectively charges operators per flight hour instead of selling engines. This is a good deal for both parties. Rolls-Royce continues to handle all engine maintenance, so it can guarantee performance. The customer, in turn, gets more value for what feels like a more reasonable total cost of ownership.

Why we like it: Rolls-Royce is known for high-performance engines and so this is the company displaying its competitive advantage and providing it really is what it claims to be.

Samsara makes devices so it can sell software

Samsara is a leading manufacturer of “internet of things” devices such as cameras, motion sensors, and fuel sensors. But the real revenue comes from the software to monitor all those networked devices. Once customers have made that upfront hardware investment, they’re sticky. They become more likely to standardize across all regions. And they are likely to pay for more and more of Samsara’s software applications.

Tesla offers a self-driving subscription

Tesla rethought the idea of a car from a software-first mindset. They may have been one of the first carmakers that shipped vehicles with software-locked features, like added battery capacity and self-driving. Whereas competing car companies have long offered leases, few have ever before figured out a way to charge an extra $100 per month in this way. Tesla also sells subscriptions to internet connection, games, and more.

Why we like it: Unlike other companies that have faced consumer ire over software-locked features, Tesla seems to have navigated this by being transparent and clear at the point of sale. It’s also a great example of creating value by adding more offerings onto an existing business model.

General subscription wisdom

There are many important considerations when layering subscription services on top of physical goods: Sometimes, manufacturers do it at their customers’ expense. Whether correct or not, HP’s customers have long complained that its ink cartridges drain too quickly, and several states and farmers lobbying groups have sued John Deere over the “right to repair” equipment they have purchased. 

Customer trust is something a company can build over a century and then lose overnight. It’s best to look to models like Tesla, Caterpillar, and Hilti which have focused their offerings on solving customer problems, and can effectively charge more at a higher margin for it.