Deep dive: Circular design & product-as-a-service — the fastest-moving subsegments to watch

Product-as-a-Service (PaaS) models retained only 34% of customers beyond their initial contract period in North America during 2024, according to Accenture's Circular Economy Index—yet the same report found that companies with mature circular design capabilities achieved 2.3x higher customer lifetime value than those retrofitting circularity onto linear products. This paradox defines the current state of circular design and PaaS: the business model works when products are designed for it from inception, but fails when applied as an afterthought to conventionally designed goods. As material costs surge and Extended Producer Responsibility (EPR) legislation expands across U.S. states and Canadian provinces, understanding which circular subsegments are gaining traction—and which face instability risks requiring careful monitoring—has become essential for engineers, product designers, and sustainability strategists navigating this transition.

Why It Matters

The circular economy represents a $4.5 trillion opportunity by 2030 according to the World Economic Forum, yet North American companies capture less than 12% of potential circular value streams. This gap exists not because circularity lacks economic logic, but because legacy product architectures, supply chain configurations, and business models create structural barriers to circular transitions. The fastest-moving subsegments—those overcoming these barriers—offer templates for broader transformation.

Regulatory pressure is accelerating. California's SB 54 mandates 65% reduction in single-use plastic waste by 2032, with producer responsibility requirements that effectively mandate circular design for packaging. Maine and Oregon have implemented similar EPR frameworks, and the European Union's Ecodesign for Sustainable Products Regulation (ESPR)—which takes effect for products sold in EU markets—is pushing North American manufacturers toward circular design regardless of domestic policy. Companies that delay adaptation face both compliance costs and competitive disadvantage as circular-native competitors establish market positions.

The financial case has strengthened considerably. Ellen MacArthur Foundation's 2024 analysis found that circular business models in durable goods sectors now achieve 15-25% higher gross margins than linear alternatives when fully mature, though the transition period typically requires 18-36 months of margin compression. Material cost volatility reinforces this advantage: aluminum prices swung 47% during 2024, while companies with closed-loop aluminum recovery maintained effective input costs within a 12% band. For capital goods manufacturers, remanufacturing operations generate 50-70% gross margins compared to 25-40% for new equipment sales.

Employment implications are substantial. The International Labour Organization estimates that circular economy transitions will create 6 million net new jobs globally by 2030, with North America projected to add 800,000 positions concentrated in reverse logistics, remanufacturing, and materials recovery. However, these jobs require different skill profiles than traditional manufacturing—monitoring signals for workforce readiness should inform adaptation planning.

Key Concepts

Circular Design refers to product development methodologies that optimize for multiple use cycles rather than single-use disposal. This encompasses material selection (favoring recyclable, renewable, or biodegradable inputs), product architecture (enabling disassembly, repair, and component reuse), and system design (creating the infrastructure for product return, refurbishment, and remarketing). Circular design differs fundamentally from "sustainable design" focused on minimizing virgin material use—it requires rethinking how products create value across extended lifespans.

Product-as-a-Service (PaaS) shifts revenue models from product sales to access provision. Customers pay for outcomes (illumination, mobility, thermal comfort) rather than ownership of assets (light fixtures, vehicles, HVAC equipment). This model aligns manufacturer incentives with product durability and efficiency: when the manufacturer retains ownership, designing for longevity and easy maintenance directly improves profitability. PaaS models require circular design to function economically—products must survive multiple customer deployments with refurbishment costs that preserve margin.

Design for Disassembly (DfD) encompasses engineering practices that enable efficient product teardown at end-of-life or between use cycles. Key principles include: minimizing fastener variety (ideally <5 fastener types per product), avoiding permanent joints where possible, clearly labeling material compositions, and sequencing assembly so that high-value components are accessible without destroying lower-value elements. Apple's 2024 iPhone disassembly robot, Daisy, can separate 29 component types in 18 minutes—but only because recent iPhone generations were designed with disassembly in mind.

Digital Product Passports (DPP) are data carriers (typically QR codes or NFC chips) that provide persistent, accessible information about product composition, origin, repair history, and end-of-life pathways. The EU's ESPR mandates DPPs for textiles, batteries, and electronics beginning 2027, with expansion to additional categories through 2030. North American companies selling into EU markets must implement DPP infrastructure, creating spillover effects for domestic operations. DPPs enable circular business models by reducing information asymmetries that otherwise impede secondary markets and materials recovery.

Reverse Logistics describes the systems that return products, components, and materials from end-users to manufacturers or processors for reuse, refurbishment, or recycling. Effective reverse logistics requires collection infrastructure, quality assessment capabilities, and integration with forward supply chains. The challenge is economic: reverse logistics costs typically exceed 25% of product value for consumer goods, making circular models viable only when product design and business models are optimized together.

What's Working and What Isn't

What's Working

B2B Equipment-as-a-Service with Strong Asset Control: The most successful PaaS implementations occur in B2B contexts where manufacturers maintain direct customer relationships and physical access to deployed assets. Caterpillar's remanufacturing operations processed 130 million pounds of end-of-life components in 2024, with Cat Reman products selling at 50-60% of new product prices while generating superior margins. The keys to success: standardized product architectures across generations enabling component interchange, embedded telematics providing real-time asset health monitoring, and service networks that combine maintenance with end-of-life recovery. B2B models avoid the reverse logistics challenges that plague consumer PaaS—when you know exactly where your assets are and have contractual rights to retrieve them, the circular loop closes reliably.

Lighting-as-a-Service in Commercial Buildings: Signify (Philips Lighting) has deployed over 4 million connected luminaires through PaaS contracts across North American commercial buildings, achieving 85% customer retention rates after initial contract periods. The model works because lighting represents 15-25% of commercial building electricity consumption, creating substantial operating cost motivation; LED fixtures have 50,000+ hour lifespans enabling multiple contract cycles; and building owners increasingly prefer operating expenses over capital expenditures for non-core infrastructure. Signify's circular design investments—modular luminaires with replaceable LED engines and drivers—reduce refurbishment costs to 15-20% of new unit manufacturing costs.

Furniture Circularity in Contract Markets: Steelcase's product takeback and refurbishment programs recovered 55 million pounds of used furniture in 2024, with refurbished products commanding 40-65% of new product prices. The contract furniture market (offices, institutions) offers structural advantages: bulk deployments simplify logistics, professional purchasers understand total cost of ownership, and workplace changes create natural equipment turnover independent of product failure. Herman Miller's (now MillerKnoll) Renew program achieves 92% material recovery rates for returned products, with 40% redeployed as refurbished units and 52% recycled into new material streams.

Electronics Refurbishment with Certification Standards: Back Market, processing 8 million refurbished devices annually in North America, has demonstrated that certified refurbishment programs overcome consumer hesitation about used electronics. Their 2024 consumer survey found that 67% of refurbished device purchasers cited environmental concerns as a primary motivation—but only when devices carried third-party quality certification. The R2 (Responsible Recycling) and e-Stewards certification frameworks provide this trust infrastructure. Apple's Certified Refurbished program, while smaller in volume, achieves 96% customer satisfaction rates comparable to new product sales.

What Isn't Working

Consumer PaaS Without Lock-In Mechanisms: Subscription models for consumer products face chronic churn problems when customers can easily exit. Rent the Runway's fashion rental service lost 45% of subscribers during 2023-2024, with exit surveys citing "subscription fatigue" and difficulty coordinating returns. Consumer PaaS models succeed only when they create meaningful switching costs (network effects, customization, or service integration) or address use cases where ownership is genuinely undesirable (occasional-use items, rapidly depreciating goods). Generic "rent instead of buy" propositions consistently underperform expectations.

Circular Design Retrofitted to Linear Architectures: Products designed for single-use manufacturing processes rarely achieve economic circularity regardless of post-hoc sustainability initiatives. A 2024 MIT Sloan study found that "circular" programs applied to conventionally designed products recovered only 23% of theoretical material value, compared to 67% for purpose-designed circular products. The gap reflects fundamental design choices: glued versus screwed assemblies, material combinations that contaminate recycling streams, and component geometries that prevent cost-effective disassembly. Organizations must accept that true circularity requires new product development—not sustainability overlays on existing designs.

Reverse Logistics Without Density: Collection economics depend critically on geographic density. UPS estimates that reverse logistics costs are 2-3x higher than forward logistics for the same weight, and these costs escalate dramatically in low-density contexts. Consumer electronics recycling programs in rural North America recover <15% of eligible devices compared to >45% in dense urban markets. Circular models requiring product return work in concentrated markets (urban consumers, fleet deployments) but struggle to achieve unit economics in dispersed contexts.

Digital Product Passports Without Ecosystem Adoption: Individual company DPP implementations provide limited value when downstream actors (recyclers, secondary market platforms, materials processors) cannot access or interpret the data. The EU's phased DPP mandate creates regulatory forcing functions for ecosystem development; North America's voluntary approach has produced fragmented, incompatible implementations. Companies investing heavily in DPP infrastructure ahead of ecosystem readiness risk stranded costs. The monitoring signal to watch: aggregator platforms that intermediate between DPP-issuing manufacturers and DPP-consuming recyclers/remarketers.

Key Players

Established Leaders

Caterpillar operates the world's largest remanufacturing business, with 17 facilities globally including 7 in North America. Their Cat Reman division generates approximately $2 billion in annual revenue while processing materials that would otherwise require virgin resource extraction. Caterpillar's multi-decade remanufacturing experience provides operational templates applicable across heavy equipment sectors.

Signify (formerly Philips Lighting) leads commercial lighting-as-a-service with their Interact platform managing 4+ million connected luminaires across North American installations. Their circular design investments—enabling luminaire refurbishment at 15-20% of new manufacturing cost—demonstrate how product architecture determines PaaS viability.

Steelcase has integrated circularity across their contract furniture business, with product takeback programs recovering 55+ million pounds annually and refurbishment operations generating premium margins. Their sustainability reporting provides detailed circularity metrics rarely disclosed by competitors.

HP Inc. operates the technology sector's most comprehensive circularity program, having recovered 1.2 billion pounds of hardware and supplies since 2016. Their Planet Partners takeback program operates in 76 countries, and HP products now average 45% post-consumer recycled plastic content in enclosures.

Interface pioneered carpet tile circularity, with their ReEntry program recovering and recycling carpet tiles into new products. Their Climate Take Back initiative—targeting carbon-negative operations—demonstrates how circular design integrates with broader sustainability strategy.

Emerging Startups

Rheaply provides enterprise asset management software that enables internal reuse and external marketplace transactions for surplus materials and equipment. Their platform has processed $500+ million in asset value across Fortune 500 customers, demonstrating that significant circular value exists within enterprise boundaries.

Grover operates consumer electronics subscription services across North America and Europe, with 500,000+ subscribers accessing devices through monthly payment models. Their refurbishment operations achieve 5+ device lifecycles, validating consumer electronics PaaS economics.

Circulor provides blockchain-based supply chain traceability enabling verification of recycled content and responsible sourcing claims. Their battery materials tracking—critical for EV supply chains—positions them for growth as EPR requirements expand.

Sourcemap offers supply chain mapping and traceability software that integrates with DPP requirements, enabling manufacturers to document material origins and composition throughout product lifecycles.

AMP Robotics deploys AI-powered robotic sorting systems that improve material recovery economics, achieving 2x throughput improvements versus manual sorting in mixed-waste MRF (Materials Recovery Facility) applications.

Key Investors & Funders

Closed Loop Partners manages $1 billion+ focused specifically on circular economy investments, with portfolio companies spanning materials recovery, reuse platforms, and circular product design. Their Closed Loop Fund provides below-market financing to municipalities for recycling infrastructure.

Circulate Capital invests in circular economy solutions addressing ocean plastic pollution, with $150+ million deployed across collection, recycling, and materials innovation ventures primarily in Asia but increasingly in North American processing infrastructure.

Breakthrough Energy Ventures includes circular economy investments within their $3.5 billion climate technology portfolio, focusing on materials innovations that enable circular product design.

The Bezos Earth Fund committed $10 billion to climate initiatives including circular economy innovation, with grants supporting both technology development and policy advocacy for circular transitions.

SYSTEMIQ operates as a hybrid consulting/investing entity, providing strategic advisory to corporations on circular transitions while investing in enabling technologies and infrastructure through their affiliated ventures.

Examples

Caterpillar's Certified Rebuild Program: Caterpillar's Cat Certified Rebuild (CCR) program remanufactures complete machines—not just components—to like-new specifications at 50-60% of new equipment cost. In 2024, the North American CCR program processed 12,000+ machines, with mining and construction customers achieving 30-40% lifecycle cost reductions compared to new equipment purchases. The program's success depends on design decisions made decades ago: standardized component interfaces across model generations, documented service procedures enabling systematic rebuild, and parts inventory systems maintaining component availability for 25+ year-old machines. The monitoring signal: CCR program expansion into newer product lines indicates successful integration of circular design into current engineering practices.

Steelcase's Revert Portfolio: Steelcase launched their Revert furniture line in 2023, designed specifically for circular lifecycle management. Revert products use 30% fewer fastener types than conventional office furniture, materials are pre-qualified for recycling compatibility, and each product includes a DPP enabling end-of-life processing optimization. Early metrics show 23% lower refurbishment costs compared to legacy products and 15% higher material recovery values at end-of-life. The critical threshold: Steelcase targets Revert representing 40% of new product sales by 2027—below this level, circular design remains a specialty rather than standard practice.

HP's Amplify Impact Program: HP's partner sustainability program requires dealers and resellers to participate in product takeback and recycling programs as a condition of highest-tier partnership status. This channel strategy—using commercial incentives rather than customer mandates—achieved 89% partner participation by end of 2024, recovering 142 million pounds of hardware through dealer networks. The adaptation planning threshold: HP monitors partner-originated versus HP-direct returns as an indicator of channel circular capability. When partner-originated returns exceed 60% of total volume (currently 47%), HP considers the channel self-sustaining for circular operations.

Action Checklist

• Audit current product architectures against Design for Disassembly principles—count fastener types, identify permanent joints, map component accessibility sequences. Products requiring >15 fastener types or destroying components to access others are poor circular candidates.

• Calculate reverse logistics costs for target customer segments based on geographic density. PaaS models typically require >$50 average order value in urban markets or >$200 in suburban/rural contexts to achieve positive unit economics on returns.

• Establish monitoring signals for circular program health: track recovery rates (products returned ÷ products sold), refurbishment yield (refurbished units ÷ returned units), and material recovery value (recycling revenue ÷ virgin material cost equivalent).

• Define adaptation planning thresholds that trigger program modifications—for example, "if recovery rate falls below 25% for three consecutive quarters, restructure collection incentives" or "if refurbishment costs exceed 40% of new unit costs, redesign product architecture."

• Implement Digital Product Passport infrastructure for products entering EU markets—the ESPR mandate creates forcing function regardless of North American policy. Use EU compliance as pilot for broader DPP deployment.

• Build channel partnerships for collection before launching PaaS programs. Reverse logistics capability takes 12-18 months to establish; beginning customer acquisition before collection infrastructure exists creates stranded assets.

• Integrate circular design requirements into new product development gates. Products should demonstrate disassembly within time thresholds, material recovery value projections, and refurbishment cost estimates before proceeding to production.

• Establish separate P&L tracking for circular operations to surface true economics. Allocating circular costs across conventional product lines obscures both successes and failures.

• Create customer segment profiles for circular programs based on ownership preferences, geographic density, and lifecycle needs. Not all customers are circular candidates; targeting appropriately improves program economics dramatically.

• Monitor competitor circular program announcements as leading indicators of category transformation. When >3 major competitors launch comparable programs, customer expectations shift rapidly.

FAQ

Q: What customer retention rates indicate healthy PaaS economics? A: B2B PaaS programs targeting equipment with 5+ year asset lives typically require >75% renewal rates at first contract expiration to achieve positive lifetime economics. Consumer PaaS models face higher churn expectations—40-50% annual retention may be acceptable if acquisition costs are proportionally lower. The critical metric is customer lifetime value relative to acquisition cost; benchmark ratios of 3:1 or higher indicate sustainable economics. Programs below 2:1 face structural challenges regardless of retention rates. Monitor cohort-specific retention to identify whether improvements in product or service are translating to behavioral changes.

Q: How do circular design requirements affect time-to-market for new products? A: Initial circular design integration typically extends development timelines by 15-25% as teams learn new methodologies and iterate on disassembly optimization. This premium decreases to <5% by the third product generation as circular design becomes embedded in standard processes and component libraries. Organizations should budget for the learning curve rather than expecting immediate capability parity. The investment pays returns beyond circular economics: teams report that DfD discipline improves manufacturing efficiency and service accessibility even for products not entering circular programs.

Q: Which product categories are poor fits for circular business models? A: Three categories consistently struggle. First, products with high contamination risk during use (food-contact items, medical devices, certain personal care products) where refurbishment cannot ensure safety or regulatory compliance. Second, rapidly depreciating technology where subsequent generations offer dramatically superior performance (consumers resist "last year's model" regardless of refurbishment quality). Third, low-value items where reverse logistics costs exceed potential recovery value—rule of thumb suggests original retail prices below $30 rarely support circular unit economics. These constraints are not absolute; product redesign can sometimes address them.

Q: How should organizations sequence circular transformation across product portfolios? A: Begin with products exhibiting three characteristics: high residual value at end-of-use (supporting refurbishment economics), predictable return timing (enabling capacity planning), and concentrated customer bases (simplifying collection logistics). For most organizations, B2B equipment lines meet these criteria more readily than consumer products. Use initial programs to build operational capabilities—refurbishment processes, quality assessment protocols, remarketing channels—before extending to more challenging categories. Attempting portfolio-wide transformation simultaneously typically results in under-investment across all programs.

Q: What are the key instability risks in circular economy transitions? A: Four risks require monitoring. First, commodity price volatility—when virgin material prices drop below recovered material costs, circular economics compress. Organizations should model sensitivity to 40% swings in key material prices. Second, regulatory uncertainty—EPR implementation schedules slip, creating stranded investments in compliance infrastructure. Third, technology disruption—new product generations that break component compatibility strand refurbishment capabilities. Fourth, competitive dynamics—if competitors exit circular programs (returning to linear models during margin pressure), remaining circular players may face adverse selection in customer bases. Establishing thresholds for each risk and defined responses enables proactive adaptation rather than crisis management.

Sources

• Ellen MacArthur Foundation, "The Circular Economy in Detail," 2024 Update
• Accenture, "Circular Economy Business Models: From Theory to Practice," 2024
• World Economic Forum, "Circular Economy Gap Report: North America," January 2025
• U.S. Environmental Protection Agency, "Sustainable Materials Management Program Data," 2024
• MIT Sloan Sustainability Initiative, "Design for Circularity: Engineering Requirements and Economic Outcomes," September 2024
• International Labour Organization, "Circular Economy Employment Projections," 2024
• California Department of Resources Recycling and Recovery (CalRecycle), "SB 54 Implementation Guidance," 2024
• European Commission, "Ecodesign for Sustainable Products Regulation: Implementation Timeline," 2024