Understanding Equipment as a Service (EaaS)

Here at Volvo, we’ve been thinking about this question a lot — and as a result, we have customers who are taking advantage of our Equipment as a Service (or EaaS) offering. In this article, I’ll explain what EaaS is, walk you through some key benefits and help you determine if it’s something to consider for your construction or mining business.

What is Equipment as a Service?

EaaS is a long-term, fleet-based service where customers don’t buy a machine but rather purchase hours from a manufacturer or a dealer to use it. It’s a tailor-made service because you use the fleet when and where you need it, with all necessary support included and managed by the manufacturer.

Essentially, you purchase a set number of operating hours for the equipment at a fixed hourly rate, paying only for the time you actually use it. You can think of it like a metered taxi ride where you only pay for the time you’re in the cab and the rate’s locked in. For EaaS contracts at Volvo, we manage the fleet and guarantee it’s available throughout the agreement. This gives you guaranteed uptime and access to the newest machines without any of the equipment ownership and maintenance responsibilities.

A key aspect of EaaS is the “pay as you go” concept. There’s no up-front investment required, plus it’s scalable. You can start a contract with a specific type and quantity of machine hours which complements your existing owned/leased/rented fleet, then add to the EaaS portion as it makes sense.

How is EaaS different from traditional rental, purchase or lease?

EaaS is unique among procurement options because you don’t own the fleet and only pay when using it. When you work with Volvo, for example, we become an active partner in managing fleet use and everything that goes with it. Costs are fixed and transparent, potential risks are minimized, and the uptime and quality of service are guaranteed. Cash flow is very efficient because cost and revenue generation move closely together. This frees up capital and other resources so you can invest in your core business to drive higher profitability.

The chart below sums up several of the high-level differences between renting, purchasing, leasing and Equipment as a Service (using Volvo as an EaaS example): 

What’s included in EaaS?

Typically, EaaS agreements include things like scheduled heavy equipment maintenance and repairs, factory updates and any unscheduled repairs. Here at Volvo, uptime is actively monitored 24/7 by our Volvo Fleet Management team in conjunction with your local Volvo dealer.

What’s NOT included in EaaS?

Things typically not included in an EaaS agreement are fuel/DEF, consumable wear items such as tires/rims, undercarriage and ground engaging tools (GET). Accidents or issues arising from misuse are also typically excluded.

It’s important to note that EaaS rates also don’t include machine operators nor site management. If you need help to improve operator skills or site efficiency, it’s easy to add options to an EaaS agreement like an Eco-Operator competency program, site assessments or digital services like Connected Map, for example.

What are the financial benefits of EaaS?

EaaS flips the script on traditional fleet ownership and offers several advantages versus leasing options.

• Optimal cash flow – The cost of running a fleet is directly tied to its usage. Operate just a little in a given month, and your cost is low — operate a lot, and your cost increases accordingly. But revenue generation increases in the same manner, meaning your net cash flow is aligned. This is particularly helpful at the start of a project, a time when fleet investment is typically at its peak, but revenue is either just beginning or still projected.
• No CapEx (Part 1) – Leasing became popular because it could be booked as an operating expense and didn’t impact a customers’ balance sheet. However, the latest accounting standards are clear — leases should now register as capital expenditures (CapEx), not operating expenditures (OpEx). Capital is finite and has a cost, which means less capital available for other/better investments and the internal cost of capital should be added to a lease calculation (up to 10% per year in some companies). Volvo EaaS qualifies as an operating service according to these accounting standards, making it a solution today to secure fleet use as an OpEx over the long term.
• No CapEx (Part 2) – Additionally, with a Volvo EaaS, you no longer have to invest in spare parts inventory (typically a CapEx) since we as the manufacturer include all maintenance and repairs. We include an uptime guarantee as well that can drastically reduce — if not eliminate — the need for backup or standby machines, which can be a massive (and often hidden) cost.
• Transparency – Fleet ownership is clearly separated from fleet use. The manufacturer’s responsibilities are defined versus yours, greatly simplifying operational management. All parties then have a shared and aligned focus on fleet uptime and operation.
• Risk management – Your financial risks are managed if not eliminated, while the manufacturer bears the full cost of any unscheduled repairs or breakdowns, effectively meaning a full warranty for the life of your contract. The hourly rates are defined over the long term (years), and you don’t have the risk or headache of disposing of old iron at the end of the day (stranded assets). Your manufacturer takes on that responsibility so you can focus on other priorities.

What are the operational benefits of EaaS?

• Fleet productivity – Typically, the manufacturer should tailor the fleet scope, size and specifications to your needs so production is secured and your operation is optimized to get your jobs done. At Volvo, we actively manage the fleet with you, partnering to drive efficiency.
• Production-driven pricing – With EaaS, the more a fleet works, the cheaper it is by the hour. At Volvo, if forecasted fleet hours are exceeded, we’ll even pay a credit back at year end, reducing net costs further. This is opposite of a rental or lease contract where “working too much” triggers penalties and increases net costs.
• Uptime guarantee – With EaaS, you should expect much more uptime. At Volvo, for example, we include an industry-leading availability commitment for the life of a contract, so you’re assured our fleet is the right fit and ready to work.
• One interface – Clear lines of communication should be defined and used between the manufacturer, supporting dealers and your company so that operations are always aligned on fleet uptime.
• Scalability – In your EaaS contract, it should be easy to add more hours of service, expand the fleet and/or geographies, and so on.

Is EaaS for everyone?

EaaS works best for large, predictable blocks of usage hours (i.e. a significant fleet that will run a number of years). Shorter term needs for few/individual machines are typically best served by rental alternatives. And remember, there’s still a place for leasing, and good reasons to purchase key portions of a fleet. EaaS is just another alternative you can consider.

I should also mention EaaS is a new concept for most businesses — a paradigm shift. But it can radically change your mobile fleet costs and management for the better, so it needs careful study to understand how it can impact your business and whether or not it makes sense for you.

How does the EaaS setup process work?

Setting up your EaaS contract should be simple — it’s really just about good communication. At Volvo, for example, we find a sequential approach works best: first we define your needs, then we build proposed service solutions with pricing options, and finally we make an agreement and deliver the service. Our fleet management team works closely with your local dealer(s) to ensure the EaaS is structured correctly. The same team then works with the dealer(s) day by day to deliver a high-quality service that enables you to go about your business.

My hope is that you now have more insight into what Equipment as a Service is and how it works. Here at Volvo, we have customers already succeeding with this fleet solution and many more interested in learning if it’s a good fit for them. You can always reach out to me with any additional questions you have, or contact your local equipment dealer and they can help you determine if EaaS is a viable option for your business.

By David Nus
Head of Fleet Management – Region Americas

David started his career with Volvo as an intern in the sales engineering team of VME Americas (Volvo Michigan and Euclid) back in 1989 and has taken on various roles since. As Head of Fleet Management today, he helps deliver more uptime to Volvo customers via Equipment as a Service and related fleet solutions.