Case study: Circular design & product-as-a-service — a sector comparison with benchmark KPIs

In January 2025, the European Commission's Circular Economy Action Plan monitoring report revealed that product-as-a-service (PaaS) business models across the EU27 reached €142 billion in annual revenue—a 34% increase from 2022—while material recovery rates for companies implementing circular design principles averaged 67% compared to just 23% for linear competitors. For European founders navigating the intersection of regulatory pressure and market opportunity, these figures represent more than incremental progress: they signal a fundamental restructuring of value creation in manufacturing, consumer goods, and industrial equipment sectors. The EU's Digital Product Passport (DPP) mandate, entering force for batteries in February 2027 and textiles by 2030, will require comprehensive material traceability across supply chains—yet fewer than 18% of European SMEs have implemented the data infrastructure necessary for compliance. Meanwhile, Scope 3 emissions, which constitute 70–90% of corporate carbon footprints, remain inadequately addressed by conventional design approaches. This sector comparison examines benchmark KPIs across industries, identifies adaptation planning thresholds, and provides founders with actionable metrics to evaluate circular design investments against instability risks.

Why It Matters

The transition from ownership-based consumption to access-based models fundamentally alters unit economics, asset utilisation, and end-of-life value recovery. In linear production systems, manufacturers capture value at the point of sale and externalise disposal costs; in circular systems, retained ownership creates incentives for durability, repairability, and material recovery that compound across product lifecycles.

European regulatory architecture is accelerating this transition with unprecedented specificity. The Ecodesign for Sustainable Products Regulation (ESPR), adopted in July 2024, establishes binding requirements for product durability, repairability, recyclability, and recycled content across virtually all physical goods placed on the EU market. The regulation mandates Digital Product Passports containing standardised data on material composition, manufacturing origin, carbon footprint, and disassembly instructions—creating the traceability infrastructure that circular business models require.

Financial materiality is equally compelling. McKinsey's 2024 analysis of 847 European manufacturers found that companies with mature circular design practices achieved 23% higher EBITDA margins than sector averages, driven primarily by reduced raw material costs (averaging 31% reduction), extended customer relationships (2.4× longer than transactional models), and premium pricing (12–18% above conventional products). The Boston Consulting Group estimates that circular economy opportunities in Europe will reach €1.8 trillion annually by 2030, with product-as-a-service representing €340 billion of addressable market.

Scope 3 emissions reduction provides additional strategic rationale. Under the Corporate Sustainability Reporting Directive (CSRD), approximately 50,000 EU companies must report comprehensive value chain emissions from fiscal year 2025. Circular design directly addresses the largest Scope 3 categories: purchased goods and services (Category 1, typically 40–60% of Scope 3), end-of-life treatment (Category 12), and use of sold products (Category 11). Companies implementing circular strategies report 18–35% Scope 3 reductions within 3 years, according to CDP's 2024 corporate disclosure analysis.

The instability risks are equally significant. Supply chain disruptions affecting critical materials—rare earths, lithium, cobalt, copper—create existential threats for companies dependent on virgin extraction. The EU Critical Raw Materials Act, effective from 2024, mandates recycled content thresholds and domestic processing capacity that only circular supply chains can reliably achieve.

Key Concepts

Material Recovery Rate (MRR): The percentage of materials by mass that are successfully recovered, recycled, or remanufactured at product end-of-life, relative to total material inputs. Industry benchmarks vary significantly: electronics achieve 35–45% MRR under WEEE regulations, industrial equipment reaches 60–75% with effective take-back programs, and textiles remain below 15% despite regulatory attention. Best-in-class circular design achieves MRR >85% by selecting recyclable materials, eliminating permanent adhesives, and designing modular architectures that facilitate disassembly. For founders, MRR directly affects Scope 3 Category 12 emissions and material cost exposure—each 10% MRR improvement typically reduces virgin material requirements by 6–8% in subsequent product generations.

Product Lifetime Extension Factor (PLEF): The ratio of actual product service life under circular models to baseline lifetime under linear ownership, incorporating repair, refurbishment, and remanufacturing cycles. PaaS models consistently demonstrate PLEF values of 1.8–3.2× compared to owned equivalents: Philips Lighting-as-a-Service products operate 2.3× longer than purchased equivalents; Caterpillar's remanufactured engines deliver equivalent performance at 50–60% of new engine cost with 3× extended lifecycle. PLEF directly affects capital efficiency, customer acquisition costs, and total carbon intensity per unit of service delivered. Monitoring signals include component failure rates, maintenance frequency, and return condition scoring—adaptation thresholds typically trigger when PLEF falls below 1.5× baseline.

Digital Product Passport (DPP) Data Completeness: The percentage of required data fields populated with verified, machine-readable information across a product's lifecycle. The ESPR mandates minimum data completeness thresholds: 90% for batteries (2027), 85% for textiles (2030), and 80% for electronics (2028). Current industry averages range from 25–40% completeness, creating significant compliance gaps. DPP infrastructure requires integration across design (CAD/PLM systems), manufacturing (MES/ERP), logistics (WMS/TMS), and after-market (CRM/service management) platforms. Implementation costs range from €50,000–500,000 depending on supply chain complexity, with ongoing data maintenance consuming 0.5–2% of product revenue. Founders should prioritise GS1 Digital Link and EPCIS 2.0 standards for interoperability.

Circular Revenue Ratio (CRR): The proportion of total revenue derived from circular activities—leasing, subscription, maintenance, refurbishment, spare parts, and material recovery—relative to conventional product sales. Mature PaaS operators achieve CRR >60%, while transitioning manufacturers typically reach 15–25% within 3 years of launching circular offerings. CRR correlates strongly with customer lifetime value (CLV), with service-attached relationships generating 3–5× higher CLV than transactional sales. Instability risks emerge when CRR plateaus below 30%—indicating insufficient retention or inadequate service margin capture. Key monitoring signals include contract renewal rates (>85% target), service margin contribution (>35% gross margin), and asset utilisation rates (>70% for deployed equipment).

What's Working and What Isn't

What's Working

Modular Architecture with Standardised Interfaces: Companies designing products with replaceable, upgradeable modules achieve superior circular outcomes. Fairphone's modular smartphone architecture enables 7+ year product lifespans with component-level replacement—material recovery rates exceed 70% through standardised disassembly. Framework Computer's laptop design demonstrates that modularity commands 15–20% price premiums while generating recurring upgrade revenue. The key design principle: standardise interfaces across product generations to maintain backward compatibility and preserve component value.

Integrated Take-Back Logistics: Manufacturers capturing end-of-life products systematically outperform those relying on third-party recyclers. IKEA's furniture take-back programme recovered 47 million products across Europe in 2024, with 63% resold through circular channels and 31% recycled into new products. The programme generates €230 million in annual circular revenue while reducing virgin material costs by €85 million. Critical success factors include customer incentives (store credit, collection services), reverse logistics infrastructure, and refurbishment capacity collocated with distribution centres.

Performance-Based Contracting in B2B: Industrial PaaS models selling outcomes rather than assets demonstrate compelling unit economics. Rolls-Royce's TotalCare® programme—charging airlines per engine flying hour rather than selling engines—achieved 99.9% availability rates while retaining 92% of engine value through remanufacturing. Michelin's fleet tyre management, charging per kilometre driven, reduced customer tyre costs by 25% while extending product life 30% through proactive maintenance. These models require robust IoT integration for usage monitoring and predictive maintenance.

Blockchain-Enabled Material Traceability: Distributed ledger technology is solving the verification challenge for recycled content claims. Circularise's platform tracks recycled plastics through chemical recycling processes, enabling Covestro and BASF to provide certified recycled content documentation meeting DPP requirements. The technology reduces verification costs by 60% compared to physical chain-of-custody approaches while enabling premium pricing for verified circular materials. Adoption is accelerating: 340 European manufacturers integrated blockchain traceability in 2024, up from 89 in 2022.

What Isn't Working

Circular Design Without Service Infrastructure: Products designed for circularity but sold through conventional channels fail to capture lifecycle value. Patagonia's Worn Wear programme recovers <3% of products sold despite industry-leading durability, because ownership transfer eliminates manufacturer control over end-of-life. The lesson: circular design must be coupled with retained ownership or contractual return obligations to achieve material recovery targets. Founders should avoid investing in design-for-disassembly without corresponding service model transformation.

Generic Subscription Models Without Asset Tracking: Consumer-facing subscription services lacking product-level tracking struggle with unit economics. Multiple European furniture subscription startups failed between 2022–2024, unable to manage asset condition, utilisation, and recovery costs at scale. Successful operators like Grover (electronics) and Swappie (refurbished phones) invest heavily in asset intelligence—serialised tracking, condition assessment algorithms, and dynamic pricing—consuming 8–12% of revenue but enabling profitable operations.

Voluntary Extended Producer Responsibility: Manufacturers relying on voluntary take-back without regulatory mandate or customer incentive achieve recovery rates below 15%. The electronic waste sector demonstrates that EPR schemes with binding collection targets (65% under WEEE Directive) drive infrastructure investment that voluntary approaches cannot replicate. Founders in unregulated categories should anticipate mandatory EPR requirements and build collection infrastructure proactively rather than reactively.

DPP Implementation Without Supply Chain Collaboration: Standalone DPP initiatives lacking supplier integration produce incomplete, unverifiable data. The EU's textile industry pilot revealed that 73% of data quality failures originated from tier-2 and tier-3 suppliers unable to provide digital documentation. Successful implementations require supplier onboarding programmes, simplified data capture tools for SME partners, and incentive structures linking data quality to payment terms.

Key Players

Established Leaders

Philips (Netherlands) — Pioneer of lighting-as-a-service, now extending PaaS models across healthcare equipment. The Circular Economy programme achieved €1.1 billion circular revenue in 2024, representing 12% of group sales. Material recovery rate exceeds 80% for professional lighting products, with refurbishment operations in Poland and Netherlands processing 2.4 million products annually.

IKEA (Sweden) — Operating Europe's largest furniture take-back programme across 30 countries. The Buy Back & Resell programme recovered 47 million items in 2024, generating €380 million in circular revenue. Committed to 100% circular business model by 2030, with €300 million invested in renewable materials, repair services, and refurbishment facilities.

Caterpillar (US/Europe) — Global leader in industrial remanufacturing, with European operations in Shrewsbury (UK) and Ottweiler (Germany) processing 130,000 units annually. Remanufactured products generate €2.8 billion revenue at 50–60% of new product pricing, with 85% material recovery rates. The Cat Reman programme reduces Scope 3 emissions by 61% compared to new production.

Renault (France) — Operates Europe's most advanced automotive circular economy facility at Flins, processing 45,000 vehicles and 120,000 components annually. The Re-Factory targets €1 billion revenue by 2030 through remanufactured parts, battery second-life applications, and vehicle refurbishment. Partnership with Veolia for battery recycling achieves 95% lithium recovery rates.

Emerging Startups

Circulor (UK) — Provides supply chain traceability for critical materials using blockchain and machine learning. Platform tracks cobalt, lithium, and plastics from extraction through recycling, serving BMW, Volvo, and Polestar. Raised €28 million Series B in 2024; processing traceability data for €45 billion in annual material flows.

Grover (Germany) — Consumer electronics subscription platform with 500,000+ active subscribers across 5 European markets. Proprietary asset management system achieves 94% device redeployment through refurbishment, extending average product life 2.8×. Reached profitability in Q3 2024 with €180 million ARR.

Lizee (France) — White-label platform enabling brands to launch rental and subscription services. Partners include Decathlon, Petit Bateau, and Aigle, processing 2.1 million rental transactions in 2024. Platform handles logistics, payments, and customer service; charges 15–20% of transaction value.

Reverse.Supply (Netherlands) — B2B marketplace connecting manufacturers with certified recyclers and refurbishers. Platform aggregates 340 recycling facilities across Europe, providing real-time pricing and capacity data. Transaction volume reached €120 million in 2024; targeting €500 million by 2026.

Key Investors & Funders

European Investment Bank (EIB) — Largest public investor in circular economy, with €2.4 billion deployed 2020–2024 under the Circular Economy Initiative. Provides concessional loans (50–100 bps below market) for manufacturing transformation, reverse logistics infrastructure, and recycling technology. Priority sectors: plastics, textiles, electronics, construction.

Breakthrough Energy Ventures — Bill Gates-backed fund with €2 billion under management targeting industrial decarbonisation. Portfolio includes circular economy investments in battery recycling (Li-Cycle), plastic recycling (Novamont), and sustainable materials. European office in London actively sourcing Series A–C opportunities.

Circularity Capital (UK) — Specialist circular economy VC with €180 million AUM across two funds. Portfolio includes 23 European companies across materials, PaaS platforms, and recycling technology. Target investment: €5–15 million Series A/B in companies demonstrating >30% circular revenue growth.

WRAP (UK) — Not-for-profit providing £25 million annually in circular economy innovation funding through Innovate UK partnerships. The Textiles 2030 and Plastics Pact programmes mobilise industry co-investment exceeding £200 million. Technical assistance programmes support 500+ SMEs annually in circular design implementation.

Examples

1. Signify (Philips Lighting) — Schiphol Airport Light-as-a-Service

In 2015, Signify (then Philips Lighting) contracted with Schiphol Airport to provide illumination as a service rather than selling lighting fixtures. The 10-year agreement covers 3,700 luminaires across the airport's Departure Hall 3, with Signify retaining ownership and responsibility for performance, maintenance, and end-of-life management.

The circular design specifications proved transformative. Luminaires were engineered for disassembly in <90 seconds using standard tools, with 94% of materials recyclable or reusable. LED modules were designed for field replacement, extending system life beyond individual component failures. Digital monitoring enabled predictive maintenance, reducing service visits by 50% compared to reactive approaches.

By 2024, the installation had operated for 9 years—approaching 2× typical ownership lifecycle—with maintained light output at 96% of specification. Material recovery at component level reached 87%, with reclaimed aluminium housings, optical assemblies, and electronic drivers reintegrated into new products. Schiphol achieved 50% energy reduction versus previous installation and 35% lower total cost of ownership compared to purchase-based alternatives.

The benchmark KPIs established: energy consumption per lux-hour (<0.8W), maintenance cost per luminaire-year (€12 vs €28 industry average), and component recovery rate (>85%). These metrics now inform Signify's PaaS contracts across 2,800 installations globally, representing €350 million in annual circular revenue.

2. Mud Jeans (Netherlands) — Circular Denim at Scale

Mud Jeans launched its lease-a-jeans model in 2013, charging €9.95 monthly for premium denim with repair services included and end-of-lease return obligation. By 2024, the company had processed 180,000 lease cycles, establishing comprehensive benchmarks for textile circularity.

The circular design protocol prioritises post-consumer recyclability: 98% organic cotton composition (eliminating synthetic blends that contaminate recycling), metal-free rivets and buttons, and laser finishing replacing chemical treatments. Manufacturing in Tunisia uses 92% renewable energy, with water consumption at 1,500 litres per jean versus industry average 7,500 litres.

Material recovery rates tell the performance story. Of jeans returned after lease completion: 35% are resold through Mud's vintage channel at €59–79 (generating higher margin than new production), 40% undergo repair and re-lease, and 25% are recycled into new denim. The recycling partnership with Recover (Spain) processes returned jeans into regenerated fibre containing 40% post-consumer content.

Financial metrics demonstrate viability: customer lifetime value averages €340 versus €89 for single-purchase customers; lease model contribution margin reaches 42% versus 31% for direct sales; and material costs decreased 28% through recycled content integration. Annual revenue reached €12 million in 2024, with 78% derived from circular channels (lease, vintage, repairs).

The adaptation planning threshold emerged at 20% return rate—below this level, insufficient material flow prevented recycling economics. Mud Jeans achieved 71% return rate through deposit systems and brand engagement, well above threshold.

3. Caterpillar Remanufacturing — Shrewsbury Facility Scope 3 Impact

Caterpillar's Shrewsbury remanufacturing facility, operational since 1975, processes 45,000 components annually—engines, transmissions, hydraulics—from returned equipment across Europe, Middle East, and Africa. The operation provides a 50-year dataset on industrial circular economics.

The remanufacturing process applies rigorous specifications: components must meet or exceed original performance standards, with Cat Reman products carrying equivalent warranties to new. Core return rates average 94% through deposit systems built into original equipment pricing, ensuring material supply continuity.

Scope 3 emissions accounting reveals the carbon impact. Remanufacturing a diesel engine requires 85% less energy than new production, eliminates mining and primary processing emissions, and extends product life by average 40,000 operating hours. Life cycle assessment conducted in 2024 demonstrated: new engine cradle-to-grave emissions of 48 tCO₂e versus remanufactured engine at 12 tCO₂e—a 75% reduction attributed entirely to Scope 3 categories 1 (purchased goods) and 12 (end-of-life).

For customer fleets reporting comprehensive emissions, Cat Reman products reduce Scope 3 Category 2 (capital goods) emissions proportionally. Fleet operators using >50% remanufactured components report 28–35% lower capital goods emissions intensity.

The facility's benchmark KPIs: core return rate (>92% threshold), remanufacturing yield (components meeting spec after processing: 89%), and customer reorder rate (74%—indicating quality acceptance). Annual revenue exceeds €180 million with gross margins 8 percentage points above new product equivalents.

Action Checklist

• Audit current Material Recovery Rate: Map end-of-life flows for your top 10 products by revenue. Calculate actual MRR against industry benchmarks (electronics: 35–45%, industrial equipment: 60–75%, textiles: 10–15%). Identify design changes required to achieve >70% MRR.

• Assess DPP readiness gap: Inventory data availability across required ESPR fields (material composition, carbon footprint, recycled content, disassembly instructions). Calculate completeness percentage against 2027–2030 thresholds. Budget €50–500K for infrastructure implementation based on supply chain complexity.

• Model PaaS unit economics: Calculate customer lifetime value under service versus sales models. Include asset depreciation, maintenance costs, refurbishment investment, and recovery value. Target 2.5× CLV improvement to justify transformation investment.

• Establish Scope 3 baseline with circular scenarios: Quantify Category 1, 11, and 12 emissions under current operations. Model reduction pathways from increased recycled content, extended product life, and improved end-of-life treatment. Target 25% Scope 3 reduction within 3 years.

• Implement return logistics infrastructure: Design take-back mechanisms with customer incentives (deposit systems, trade-in credits, collection services). Target >50% return rate as minimum threshold for circular material flows. Partner with existing reverse logistics providers for initial scale.

• Deploy asset-level tracking for deployed products: Integrate IoT monitoring or serialised tracking across PaaS fleet. Enable usage-based billing, predictive maintenance, and condition assessment at return. Budget 8–12% of service revenue for asset intelligence systems.

FAQ

Q: What minimum Material Recovery Rate justifies circular design investment, and how do sector benchmarks differ?

A: The economic threshold for circular design investment typically emerges at 50% MRR, where recovered material value begins offsetting collection and processing costs. However, sector benchmarks vary significantly based on material value density and regulatory requirements. Electronics recycling achieves profitability at 35–45% MRR due to precious metal content, while textiles require >60% MRR to offset low fibre values. Industrial equipment with high-value components (engines, hydraulics) demonstrates positive economics at 70%+ MRR. For founders, the decision framework should incorporate: material value per kg recovered (target >€2/kg), collection cost per unit (<15% of recovery value), and regulatory compliance value (avoiding EPR fees or enabling market access). Companies achieving >75% MRR consistently report material cost advantages of 25–40% versus linear competitors.

Q: How should European founders prepare for Digital Product Passport requirements given 2027–2030 implementation timelines?

A: Preparation requires immediate action despite apparently distant deadlines. The ESPR mandates phased implementation—batteries February 2027, textiles 2030, electronics 2028—but supply chain data integration requires 18–24 months of supplier onboarding. Founders should: (1) audit current data availability against ESPR requirements, prioritising material composition, carbon footprint, and recycled content; (2) adopt GS1 Digital Link and EPCIS 2.0 standards for interoperability with customer and regulatory systems; (3) implement supplier data capture tools, recognising that tier-2/3 suppliers cause 73% of data quality failures; (4) budget €50,000–500,000 for system integration depending on supply chain complexity; and (5) engage with industry consortia (CIRPASS, Battery Pass) to influence implementation standards while avoiding stranded investments in non-compliant solutions.

Q: What monitoring signals indicate PaaS business model instability, and what adaptation thresholds should trigger strategic response?

A: Critical monitoring signals span customer behaviour, asset performance, and financial metrics. Customer indicators: contract renewal rate <85% signals value proposition weakness; return condition scores declining >10% year-over-year indicate usage pattern changes affecting refurbishment economics. Asset indicators: Product Lifetime Extension Factor <1.5× baseline suggests design or maintenance failures; refurbishment yield <80% signals accelerating obsolescence or damage rates. Financial indicators: Circular Revenue Ratio plateauing <30% indicates insufficient service capture; service margin contribution <30% gross margin threatens long-term viability. Adaptation thresholds should trigger response within one planning cycle: initiate design refresh when PLEF declines >15%; restructure pricing when renewal rates fall below 80%; and reassess category viability when CRR stagnates below 25% for two consecutive years.

Q: How does circular design implementation affect Scope 3 emissions reporting under CSRD requirements?

A: Circular design directly addresses the largest Scope 3 categories, creating reportable emissions reductions from fiscal year 2025. Category 1 (purchased goods and services, typically 40–60% of Scope 3) decreases through recycled content integration—each 10% virgin material replacement reduces Category 1 proportionally. Category 11 (use of sold products) benefits from efficiency improvements and lifetime extension under service models. Category 12 (end-of-life treatment) improvements derive from design-for-recyclability and take-back programs—companies achieving >70% MRR report 50–70% Category 12 reductions. CDP's 2024 analysis found circular economy leaders achieving 18–35% total Scope 3 reductions within 3 years of implementation. For founders, this creates dual value: regulatory compliance and preferential access to corporate customers with science-based targets requiring supplier emissions reductions.

Sources

• European Commission. (2024). "Circular Economy Action Plan Implementation Report 2024." Publications Office of the European Union.

• Ellen MacArthur Foundation. (2024). "Completing the Picture: How the Circular Economy Tackles Climate Change—2024 Update." Cowes: Ellen MacArthur Foundation.

• McKinsey & Company. (2024). "The Circular Economy in European Manufacturing: Performance Analysis of 847 Companies." McKinsey Sustainability Practice.

• CDP. (2024). "Accelerating the Circular Economy: Supply Chain Disclosure and Emissions Impact Analysis." CDP Worldwide.

• European Commission. (2024). "Ecodesign for Sustainable Products Regulation (ESPR): Technical Guidance on Digital Product Passports." DG GROW.

• Boston Consulting Group. (2024). "The €1.8 Trillion Opportunity: Circular Economy Value Creation in Europe 2030." BCG Henderson Institute.

• WRAP. (2024). "Textiles 2030 Progress Report: Material Recovery and Business Model Innovation." Banbury: WRAP.

• Accenture. (2024). "Product-as-a-Service: Business Model Economics and Implementation Benchmarks." Accenture Strategy.