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Lighting as a Service Business Model: a Comprehensive Guide
Why spend so much money on lighting when you could use that capital to invest in something strategically more important for your business? There is always something that needs to be replaced or a new tool or machine that needs to be bought. The most successful companies are always on the lookout for the next smart tool or the next big thing. They are constantly seeking the next opportunity to do something better. Something that is more cost-effective and business-friendly.
Any time a process or a strategy can be tweaked to give better results or save some money, these businesses take the plunge. Whenever an old model of operation can be questioned, they are the first to attempt something new and then evaluate how it affects their business. Nevertheless, staying current with the trends and being a leader in any industry can be difficult. Having an innovative outlook and employees who know in which aspects to look for the latest and greatest solutions is essential. However, one of the largest obstacles for a lot of companies is the budget.
The answer to this problem is a business model that has grown in popularity in the past few years: Lighting as a Service (LaaS)
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What is Lighting as a Service (laas)?
LaaS is a service contract in which a lighting provider handles the installation and maintenance of the lighting systems and controls for a customer. The financial savings that the customer will gain in a defined term from the installation of these systems are shared between the lighting provider and the customer.
The lighting provider plans and designs the whole retrofitting process in order to upgrade and optimize your lighting system. They purchase and coordinate the installation of all the equipment required. This helps customers to overcome a common obstacle to upgrading their facilities – the cost of the project.
Lighting upgrades can be very expensive, especially for large spaces. This is one of the reasons why LaaS has become so popular – it spreads the cost of installing new, highly efficient, and long-lasting lighting over the course of the contract.
After the providers have completed the upgrade, they will be responsible for ongoing maintenance, and if needed, they will upgrade your lighting system again in the future. Some companies will offer to take care of the recycling and disposal of your old lighting fixtures and equipment, based on the terms of your agreement.
After the agreed term ends, the customer keeps the lighting systems and controls they have installed and continues reaping the benefits of the lighting system without the cost. In this case, the company guarantees the financial savings that will come as a result of the reduced energy consumption.
This is typically done with the help of engineered calculations established on the customer’s pattern of operations and history of energy use. The process involves analysis of current data, establishing a lighting strategy, installation of upgraded technology, as well as continual management of the system. In most cases, real-time metering and certain measurement practices are also involved in the process.
LaaS is an effective way to reap the benefits of your lighting upgrade and make it a “cash-flow positive” from the get-go. In some cases, the energy savings from the implemented new technology might be higher than expected and more than enough to cover the monthly cost of Lighting as a Service.
How Can Laas Benefit Your Business?
The great advances in LED lighting technology are just one of the reasons why businesses want to start using them. It’s not news that energy-saving technologies, like LED lighting, motion sensors, automated timers, and the like, can reduce costs and improve business efficiency.
Nowadays, it is becoming more and more attractive to rent your lighting system instead of spending a fortune on buying it. The money you will end up saving on reduced energy costs can easily cover the monthly payment for your new lighting system. This will consequently result in a free upgrade of your lighting fixtures, sensors, and timers.
Let’s take a look at the benefits of the Lighting as a Service business model and see why you should implement it in your operations.
1. No Upfront Costs
All of the LED fixtures included in your custom project are paid for by the provider. The customer doesn’t pay for the installation costs nor for any of the fixtures or sensors. A restricted budget and the high upfront capital needed to undertake the project are usually some of the biggest obstacles for most businesses to start retrofitting their lighting systems.
The business model Lighting as a Service eliminates this roadblock, enabling businesses to begin with their new lighting installation whenever they want. Instead of paying initially, the equipment costs will be divided into monthly payments throughout the duration of the contract, leaving the client free to use their budget on other important investments.
2. No Lighting Maintenance Costs
When opting for the Lighting as a Service business model, all maintenance costs related to your new lighting system are eliminated. Providing the needed parts and labor remains the responsibility of your lighting system provider as per your agreement. Lighting providers are quite familiar with the work they do and are obliged to stay updated with the federal and local building codes. When choosing LaaS, this is one less thing you will need to worry about.
3. Start Saving from Day One
From the moment your provider finishes installing your new lighting system and the lights turn on, you will start reaping its benefits. With strategically placed LED lights and sensors, you can make use of light only when needed. There is usually a lot of movement in businesses with people going in and out and moving all over the place. Automated lighting is an effective way to minimize your lighting costs and increase savings.
4. Increased Employee Productivity and Safety
Installing a highly efficient and cost-effective lighting system can improve the visibility of your premises and can help your employees see better what they are doing. With improved levels of illumination and the eliminated need for frequent maintenance, your staff can be more productive by focusing on their tasks better. Plus, quality and properly installed lighting mean a safer work environment and fewer hazards associated with poor visibility.
5. Environmentally Friendly
One of the biggest benefits of Lighting as a Service is that companies can reduce their carbon footprint with highly efficient LED lighting. Consequently, they can put more focus on sustainability and inspire other businesses in their industry to do so as well. LED lights can also indirectly affect HVAC costs as they do not emit heat like other lighting solutions, so there will be no need for additional cooling.
6. No Technological Obsolescence
The LaaS provider you choose will install advanced LED lighting technology. Towards the end of your agreement, you can also make some upgrades and tweaks to your lighting system if both parties agree. These upgrades can be done where necessary in order to continue the savings and to extend the agreement. If your lighting provider offers this, you can pay a bit extra every month so that you can ensure you always have the latest lighting technology.
7. Project Management Through the Whole Process
The lighting provider you choose to work with will provide you with seamless project management and will efficiently manage your lighting upgrade from the beginning to its final stage. They will make sure the installation process is completed efficiently and that the lighting installed complies with the local, state, and federal requirements.
Laas vs. Other Procurement Methods
This method requires buying the lighting fixtures, their controls, and everything needed for the proper operation of the system upfront. Installation costs are also paid as soon as the project is completed. After everything is set up, the buyer has complete ownership of the lighting system installed on their premises.
Any future maintenance needed that’s not included in the initial warranty by the manufacturer is left to the owner to take care of. This procurement method requires a great upfront expense. Although you will have full ownership of the gear installed, you will still have to pay for any additional services, support, and upgrades.
Loan or Lease Agreement
When loaning or leasing your lighting system, you reduce the upfront investment. However, this is still considered a capital expenditure. Besides paying the interest during the time of the loan, you also need to take care of the service and maintenance of your lighting system beyond the initial warranty given by the manufacturer. On top of that, you’re also responsible for any upgrades or replacements of your lighting fixtures.
This method is based on using savings to pay for the installation of the new lighting system over a certain period of time. However, its biggest downside is that it requires complex modeling, specific measurements, and verification.
When making a saving agreement, maintenance and a limited warranty are included. For any upgrades, you will need to refer back to the shared savings agreement you have established with your lighting services provider.
Lighting as a Service ( LAAS )
As we have already explained, this method is basically a monthly subscription. It divides the expenses related to the lighting, installation, and regular maintenance over the course of the agreement established between the two parties. Since it is a service agreement, it is calculated as an operating expense instead of a capital expense.
The Commercial Segment is Expected to Dominate the Market
- The commercial section involves stores, offices, hospitals, institutions, etc. These spaces are not residential, industrial, or manufacturing. The initial cost of commercial lighting is usually higher than other types of lighting and it requires more maintenance and higher service costs. However, this kind of lighting is also more durable, more energy-efficient, and has a longer lifespan. Commercial activity is among the most important factors for tracking the economy of a particular region.
- Since electricity consumption is constantly on the rise, many businesses adopt the Lighting as a Service (LaaS) model for their commercial spaces. The great energy and financial savings of this business model are very attractive for commercial users due to the increased focus on energy efficiency and sustainability. The overall cost reductions are the main reason for the rapid spread and adoption of Lighting as a Service. For example, LED retrofits in a range of commercial spaces in the USA have shown some great results. In Building Exterior Lighting, the end result of using LED lights resulted in reducing energy costs by 63%.
- The COVID-19 pandemic has significantly impacted the construction process of commercial buildings. The Bank Pekao SA claims that out of all kinds of buildings, only office buildings, have suffered a decline in their production by 20% in Poland. Moreover, with companies from all over the world sending their employees to work from home, it is expected that these instances will impede market growth in the shorter run.
North America is Expected to Dominate the Market
- Including 23 countries and having an increasing GDP of USD 24.98 trillion in 2019, North America has a significant electricity consumption. This part of the USA has started adopting different strategies to reduce energy consumption and increase lighting efficiency in the country.
- In 2019, the Trump administration revealed their plans to start using energy-efficient light fixtures to decrease the rate of energy consumption and help control carbon emissions. These emissions are primarily created in the USA from natural gas-powered plants to generate electricity. According to their plan, all light bulbs sold in the USA must be either fluorescent or LED to meet the newly set energy standards.
- Besides the USA, another leading country in the region focused on reducing energy consumption is Canada. Canada is concentrated on conserving electricity and implementing a range of lighting standards. Therefore, with the growing application of standards and services in this region, it is anticipated Canada to become an important player in the LaaS market in the near future.
- Thanks to its diverse capabilities, comprehensive multi-site installations, up-to-date analytics, energy monitoring, and networked light management systems, LaaS is very likely to dominate the multi-billion lighting market. For example, most cities in Canada are constantly promoting the benefits of LED lighting in increasing energy efficiency, thus encouraging market growth.
Finding Reliable Lighting as a Service Providers
Data shows that LaaS will continue to be a popular option for business owners who are looking to upgrade their lighting system with more efficient fixtures and do so in a cost-effective way. If you have decided to go with the Lighting as a Service model, make sure you’re working with a reliable provider. Double-check their reviews, the services they offer, their prices, and customer experience.
The company you choose should help you decide on the best course of action for your specific case and help you establish an effective energy management strategy. These professionals should help you negotiate the best terms for your situation so that they are suitable with all the other steps you take to reduce your operations costs, save energy and reduce your environmental impact.
Using Lighting as a Service is a great way to start seeing fast and significant savings from your lighting upgrade without spending a fortune. Your lighting service provider should help you design a sustainable and all-encompassing plan to help you reduce your energy needs in the future.
Whether you call it “Lighting as a Service”, “Lumens as a Subscription”, or use any other acronym for it, this payment business model can benefit your business in various ways if it is strategically applied. There really is no reason why anyone would not want to opt for it and start saving. LaaS doesn’t require any upfront investment, it reduces your costs in the long run, brings cash flow from day one, protects your operations from obsolescence, does not require maintenance, provides better working conditions, and increases energy conservation. What’s not to love about it? It is a win-win deal for both parties!
About the Author
Neil Peterson is Chief Operating Officer at LED Lighting Supply. He has been active in the LED industry for over 10 years and is responsible for product planning and management as well as revenue and operations at LED Lighting Supply. Much of Neil’s time is focused on customer engagement for large commercial and industrial lighting requirements. When not working, he enjoys family time, camping, fishing, and sports..