4 Different Business Models that Hardware Startups Use to Generate Revenue

There’s a good chance that business models for hardware startups who are new to the business can often be summed up in two words: sell volume. That is to say, that the number one strategy for providing value and increasing revenue for most hardware companies is just to sell more of whatever product they’ve made.

However, with the surge of new hardware devices hitting the market many hardware startups are finding new ways to generate revenue.  In this article, we’ll look at some hardware startups with unique business models, to demonstrate how you can continue to earn from your customers and improve your cashflow and growth as a result.

Read on for some smart, unique business models for hardware startups…Importance of business models

Consumables

A similar strategy is often taken by companies that sell electric toothbrushes and fancy razors. Often the initial sale actually costs the business, but the toothbrush heads and the blades are what make the profit. Vortex is one example of a hardware startup that sells electric toothbrushes, which will benefit from this kind of model by using consumable toothbrush heads; and is currently doing the rounds on Kickstarter..

Sometimes this model is described as consumable, wherein the hardware is the dispenser that allows the buyer to use the consumables (which is where the margin lies).

Another simple example might be a hand towel dispenser, where the real profit comes from the towel refills. In the business world we call this the razor-razor blade model. The company will sell you the razor handle at cost or even at a loss and make up the difference by selling you the razors at a high price with nice margins.

Importance of business modelsHardware-as-a-Service

The ‘hardware-as-a-service’ model is an old one, but it has endured for good reason. These companies rent out their hardware, which often include the likes of cash machines and printers, and charge a recurring fee for the companies that use them. The clients don’t actually own the technology, but in exchange they gain access to free updates and maintenance. The only downside is once again that it can take a long time before you reach breakeven.

This type of business model doesn’t only apply to B2B organizations though. Another example might be something like Karma; this is a small device that you can use to connect to the web wherever you are, but of course, it requires a recurring fee to access this service.Importance of business models

Hardware-Enabled-Service

Slightly different is the ‘hardware-enabled-service’ model, which is essentially a hardware product with an optional additional service element. A good example is Dropcam (recently purchased by Nest), which sells a hardware device (a webcam in this case), alongside an optional security service. Similar is the premium software platform offered by Fitbit on top of its fitness tracker. Even Xbox Live uses this strategy.

Hardware-as-a-Platform

Oculus will make money from sales on their Rift devices but what they’ll also profit from is licensing the rights to develop for the platform out to third parties. This is just the same as any games console, where the main profits will come from sales of licensed games as opposed to the actual console.

Importance of business modelsConclusion

Hopefully, some of these examples have inspired you to start thinking out of the box with your own business models for hardware startups. The end result is that hardware startups are finding other ways to increase their revenue streams than selling another piece of hardware. The key here is to become cash-flow positive as fast as possible and squeeze out as many extra dollars you can from customer that bought the hardware product from you. A lot of people are saying that all these hardware products coming out are just great software products disguised as hardware.  What do you think? Will let you tell us in the comments below. Have these models worked for you in the past? How? Do you have any canny models of your own not mentioned here that you’d like to share with our community? Don’t forget to subscribe to our newsletter for more startup news too!

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