Explainer: Circular design & product-as-a-service — what it is, why it matters, and how to evaluate options

The global circular economy solutions market reached an estimated $2.9 trillion in 2024–2025, with venture capital investment in circular startups surging 286% since 2022 to $14.3 billion (Research & Metric, 2025). Yet despite this momentum, the global economy remains only 7.2% circular—a stark reminder that most products still follow linear "take-make-dispose" trajectories. Within this transition, circular design and product-as-a-service (PaaS) models represent perhaps the highest-leverage intervention points: research consistently shows that 80% of a product's environmental impact is locked in at the design stage (Ellen MacArthur Foundation, 2024). For procurement professionals, sustainability officers, and business strategists, understanding these concepts is no longer optional—it is essential for regulatory compliance, competitive positioning, and genuine environmental stewardship.

Why It Matters

The convergence of regulatory pressure, resource scarcity, and shifting consumer expectations has transformed circular design from an aspirational concept into a business imperative. The EU Circular Economy Action Plan mandates that all packaging must be recyclable or reusable by 2030, while digital product passport requirements are emerging across jurisdictions. Companies implementing circular strategies report 23% higher profit margins within three years, while those with strong circular credentials access capital at 1.2–1.8% lower interest rates (Gitnux, 2024).

Product-as-a-service models fundamentally restructure the manufacturer-customer relationship. Instead of transferring ownership at point of sale, companies retain ownership and deliver outcomes—lumens instead of lightbulbs, kilometres instead of tyres, clean clothes instead of washing machines. This alignment of incentives transforms manufacturers' motivations: durability, repairability, and resource efficiency become profit drivers rather than cost centres.

The climate implications are substantial. Circular economy approaches could reduce global greenhouse gas emissions by 39% by 2032 and unlock $4.5 trillion in additional economic output by 2030 (World Economic Forum, 2024). The EU estimates that circular business models could create 700,000 net new jobs by 2030, while globally this figure approaches two million.

Consumer sentiment reinforces these drivers: 73% of global consumers now consider environmental impact when purchasing, with 58% willing to pay premiums for circular brands. This represents a fundamental shift from niche environmentalism to mainstream market expectation.

Key Concepts

Circular Design Principles

Circular design operates on several foundational principles that distinguish it from traditional product development:

Design for longevity prioritises durability, timelessness, and emotional attachment. Products are engineered to exceed minimum functional requirements, using materials and construction methods that resist degradation. This includes considerations of both physical durability (material strength, wear resistance) and psychological durability (aesthetic longevity, adaptability to changing needs).

Design for disassembly ensures products can be efficiently separated into constituent materials at end-of-life. This requires avoiding permanent joining methods (adhesives, welding) in favour of reversible fasteners, standardised connections, and modular architectures. Apple's 2025 robotic disassembly system achieves 98% recovery rates for critical minerals precisely because products are designed with disassembly pathways in mind.

Design for multiple cycles considers not just the first use phase but subsequent remanufacturing, refurbishment, and recycling loops. Materials selection considers recyclability, contamination risks, and compatibility with existing recovery infrastructure. Components are designed for reuse across product generations.

Material health ensures that materials used are safe for humans and ecosystems throughout all lifecycle phases, including during recycling or composting. This often requires eliminating legacy chemicals and avoiding materials that contaminate recycling streams.

Product-as-a-Service Models

PaaS encompasses several distinct business model variations:

Pay-per-use charges customers based on actual utilisation—Michelin's fleet solutions charge per kilometre driven rather than per tyre purchased. This model transfers risk from customer to provider while incentivising maximum product utilisation efficiency.

Subscription models provide ongoing access for periodic payments, often including maintenance, upgrades, and eventual take-back. IKEA's 2025 furniture-as-a-service offering allows customers to lease modular furniture with guaranteed repair, component replacement, and end-of-life recovery.

Performance-based contracts guarantee specific outcomes—Signify's Light-as-a-Service contracts may guarantee specific illumination levels while retaining ownership of all lighting infrastructure. Payment is tied to delivered performance rather than equipment specifications.

Hybrid models combine elements of ownership transfer with service components—equipment sale plus maintenance contracts, trade-in guarantees, or buyback commitments that ensure manufacturer participation in end-of-life management.

Sector-Specific KPIs for Circular Design & PaaS

Sector	Primary KPI	Baseline (Linear)	Target (Circular)	Measurement Method
Lighting	Equipment utilisation rate	40–50%	>85%	IoT sensor data
Tyres	Retreading/regrooving rate	10–15%	45–50%	Fleet management systems
Furniture	Product lifespan (years)	5–7 years	15–20 years	Warranty tracking
Electronics	Material recovery rate	20–30%	>90%	Recycling audits
Textiles	Revenue per garment lifecycle	1× sale	3–5× (rental cycles)	Transaction records
Commercial HVAC	Energy efficiency improvement	Baseline	25–40% reduction	Building management data

What's Working and What Isn't

What's Working

Industrial equipment sectors have proven the most natural fit for PaaS models. Signify's Light-as-a-Service covers over 2,000 commercial installations worldwide, demonstrating that complex technical products with high maintenance requirements translate well to service models. The company maintains carbon-neutral operations and has achieved CDP Climate A-List status for seven consecutive years.

Fleet-based applications excel because customers already think in terms of total cost of ownership rather than purchase price. Michelin's Connected Mobility service covers approximately 400,000 vehicles and generates €500 million in annual revenue while achieving 46–47% retreading rates—two to four times the industry standard. Their IoT-enabled tyre monitoring reduces fuel consumption by up to 5% and extends tyre service life significantly.

Corporate procurement increasingly favours circular suppliers. Companies with strong circular credentials report 27% higher brand valuations, creating powerful B2B incentives. The fashion rental market demonstrates this in consumer contexts: rental models can increase margins three to five times per garment compared to single sales.

Technology-enabled traceability is accelerating adoption. Circularise's blockchain-based digital product passports, deployed with Samsonite in April 2025, enable material provenance tracking throughout product lifecycles. This addresses persistent verification challenges that previously undermined circular claims.

What Isn't Working

Consumer-facing PaaS adoption remains challenging. Michelin's initial Fleet Solutions launch (2000–2003) failed precisely because the value proposition proved difficult to communicate to end customers accustomed to ownership models. The company only succeeded after creating a separate business unit and focusing on commercial fleet operators rather than individual consumers.

Internal organisational resistance frequently undermines PaaS transitions. Sales teams compensated on unit volume fear cannibalisation of traditional product sales. A 2024 industry survey found that 51% of companies cite lack of internal expertise as a primary barrier, while existing KPI structures often penalise service models with longer revenue recognition timelines.

Infrastructure gaps persist across sectors. Many recycling and remanufacturing supply chains remain underdeveloped, meaning even well-designed products encounter bottlenecks at end-of-life. Only 60% of companies have implemented any circularity measures, and most remain limited to basic recycling rather than higher-value circular strategies.

Cost structure complexity creates unexpected challenges. Service models require ongoing operational capabilities—maintenance networks, logistics, inventory management—that product companies historically outsourced to customers. These costs are often underestimated during initial business case development.

Key Players

Established Leaders

Signify (Netherlands): The global lighting leader pioneered Light-as-a-Service, retaining ownership of lighting infrastructure while delivering illumination outcomes. With €6.1 billion in 2024 revenue and operations across 70+ countries, Signify demonstrates that PaaS can work at scale in industrial contexts.

Michelin (France): Through its Connected Mobility division, Michelin has transformed from tyre manufacturer to mobility services provider. Their pay-per-kilometre model, supported by IoT sensors and predictive analytics, generates approximately €500 million annually while dramatically improving retreading rates and resource efficiency.

IKEA (Sweden): Launched furniture-as-a-service pilots in February 2025, offering subscription access to modular furniture systems with integrated repair, component replacement, and take-back services. The model leverages IKEA's existing logistics infrastructure and design expertise in flat-pack modularity.

Caterpillar (United States): Their Cat Reman programme remanufactures heavy equipment components to as-new specifications at 50–60% of new component cost, saving an estimated 136 million pounds of material from landfills annually.

Emerging Startups

Circularise (Netherlands): Provides blockchain-based digital product passports enabling verified material traceability across supply chains. Recent deployment with Samsonite demonstrates enterprise scalability.

Resourcify (Germany): Offers digital waste management platforms connecting businesses with optimal recycling and recovery pathways, using AI to maximise material value retention.

Grover (Germany): Consumer electronics subscription platform allowing access to devices including smartphones, laptops, and gaming equipment with built-in upgrade pathways and end-of-life management.

Rheaply (United States): Asset management platform enabling organisations to track, share, and recirculate underutilised resources internally and across institutional networks.

Key Investors & Funders

Closed Loop Partners (United States): Multi-strategy investment firm dedicated exclusively to circular economy, operating venture capital, private equity, and infrastructure funds. Portfolio includes investments across packaging, materials recovery, and product design.

Circular Innovation Fund (Global): Joint venture between Demeter and Cycle Capital, investing in growth-stage circular economy companies across materials, packaging, and recycling sectors.

Circularity Capital (United Kingdom): Growth equity investor focused on European circular economy businesses, backed by major pension funds and insurance companies seeking long-term sustainable returns.

European Investment Bank: Through its Joint Initiative on Circular Economy (JICE), targeting €16 billion in circular economy investments by 2025, with particular focus on waste management and bioeconomy sectors.

Examples

1. Signify Light-as-a-Service: Schiphol Airport

Amsterdam's Schiphol Airport partnered with Signify (then Philips Lighting) for a comprehensive Light-as-a-Service installation. Rather than purchasing lighting equipment, the airport pays for guaranteed illumination levels. Signify retains ownership of all fixtures, LED systems, and sensors, handling installation, maintenance, and eventual recycling. The airport reduced energy consumption by over 50% compared to previous installations while eliminating capital expenditure and maintenance burden. Signify benefits from recurring revenue, increased customer loyalty, and strong incentives to maximise equipment longevity and energy efficiency. The installation uses connected IoT sensors enabling real-time performance monitoring and predictive maintenance.

2. Michelin Fleet Solutions: Commercial Transport

Michelin's evolution from failed 2000-era "tyre rental" to successful Connected Mobility services offers critical lessons. Modern implementations provide commercial fleet operators with comprehensive tyre management: selection, installation, pressure monitoring, retreading, and replacement. Customers pay monthly service fees plus per-kilometre charges, transferring risk to Michelin while gaining predictable operating costs. IoT sensors track pressure, temperature, and wear in real-time. The model achieves 46–47% retreading rates versus 10–15% industry standard, reducing material consumption and extending asset lifespans. Fleet operators report 80% reduction in tyre-related service calls and up to 12% carbon footprint reduction through optimised tyre performance.

3. Mud Jeans: Consumer Textiles

Dutch denim company Mud Jeans pioneered fashion-as-a-service through their "Lease A Jeans" programme. Customers pay monthly subscription fees (approximately €9.95) for jeans access, with options to swap, return, or purchase at programme end. Returned jeans are professionally cleaned and offered as "vintage" products, or recycled into new denim when no longer wearable. The model addresses fashion's substantial environmental footprint—the industry generates approximately 92 million tonnes of textile waste annually. Mud Jeans reports 91% of leased jeans return to circulation, dramatically improving resource efficiency compared to conventional linear fashion models. The company uses organic cotton and post-consumer recycled content, demonstrating that circular business models can integrate with sustainable materials sourcing.

Action Checklist

• Conduct product portfolio lifecycle assessment: Map environmental impacts across your product range, identifying design decisions that lock in downstream consequences. Prioritise products with highest impact potential for circular redesign.

• Evaluate PaaS feasibility by product category: Assess which products have characteristics favouring service models—high maintenance requirements, predictable utilisation patterns, significant residual value, complex end-of-life management needs.

• Audit supply chain circularity capabilities: Identify existing partners' capabilities in remanufacturing, refurbishment, and materials recovery. Map gaps requiring development or new partnerships.

• Develop circular design guidelines: Establish organisational standards for material selection, disassembly protocols, modular architecture, and multi-lifecycle planning. Integrate these into product development processes.

• Pilot service model variations: Test different PaaS structures (pay-per-use, subscription, performance-based) with willing customer segments before full-scale deployment. Document learnings systematically.

• Align internal incentives: Restructure sales compensation, KPIs, and organisational metrics to support circular transitions. Address the cannibalisation concerns that derailed early PaaS efforts.

• Establish take-back infrastructure: Develop or partner for reverse logistics capabilities enabling product return, refurbishment, and end-of-life recovery at scale.

• Implement traceability systems: Deploy digital product passports or equivalent tracking enabling material provenance verification and circular claims substantiation.

FAQ

Q: How do product-as-a-service models affect revenue recognition and financial reporting?

A: PaaS models fundamentally change revenue timing—instead of recognising full product value at sale, revenue spreads across service contract duration. This requires modified financial planning, potentially different tax treatment, and revised investor communication. Companies must maintain assets on balance sheets longer, affecting capital ratios and asset utilisation metrics. Many organisations create separate business units for service offerings to avoid distorting traditional business segment reporting. Finance teams should engage early in PaaS design to structure contracts appropriately for accounting standards (IFRS 15, ASC 606) and ensure adequate working capital planning.

Q: What regulatory requirements should we anticipate for circular design in the next 3–5 years?

A: The EU leads regulatory development through several mechanisms: the Ecodesign for Sustainable Products Regulation (ESPR) will establish mandatory design requirements including durability, repairability, and recycled content minimums for priority product categories. Digital Product Passports will become mandatory for textiles, electronics, batteries, and construction products by 2027–2030. The UK is developing parallel frameworks post-Brexit. Extended Producer Responsibility (EPR) schemes are expanding globally, shifting end-of-life costs to manufacturers. Organisations should monitor the EU Sustainable Products Initiative for specific category timelines and begin compliance preparation eighteen to twenty-four months ahead of enforcement dates.

Q: How do we manage the transition from product sales to service models without cannibalising existing revenue streams?

A: Successful transitions typically follow staged approaches: identify customer segments with distinct service needs (often commercial/institutional before consumer), create organisationally separate service units with dedicated teams and metrics, and phase deployment to avoid direct competition with existing channels. Michelin's experience demonstrates that initial attempts integrating PaaS within existing sales organisations typically fail due to incentive conflicts. Many organisations maintain parallel offerings during transition—traditional purchase options alongside service alternatives—allowing market signals to guide resource allocation. Clear internal communication about strategic rationale helps manage cultural resistance.

Q: What data infrastructure is required to support circular design and PaaS effectively?

A: Effective circular models require capabilities across several domains: IoT connectivity for product performance monitoring and predictive maintenance; customer relationship management systems adapted for ongoing service delivery rather than transactional sales; reverse logistics tracking enabling efficient product return and processing; material composition databases supporting end-of-life decision-making; and integration with enterprise resource planning systems for service contract management. Many organisations underestimate these requirements—infrastructure investment often exceeds initial product redesign costs. Cloud-based platforms increasingly offer modular capabilities, reducing build-versus-buy decisions.

Q: How should we evaluate potential PaaS partners and providers?

A: Key evaluation criteria include: demonstrated operational track record in service delivery (not just product quality); financial stability to honour multi-year service commitments; reverse logistics capabilities at appropriate geographic scale; technical infrastructure for performance monitoring and reporting; alignment of sustainability commitments with your organisational values; contractual flexibility for evolving requirements; and clear end-of-contract transition provisions. Request customer references specifically for service model deployments rather than traditional product sales. Assess providers' own circular performance—their internal practices indicate genuine capability versus marketing positioning.

Sources

• Ellen MacArthur Foundation. (2024). Circular Design Guide: Principles and Practice. https://www.ellenmacarthurfoundation.org/circular-design-guide

• GM Insights. (2025). Circular Economy Solutions Market Size and Share Analysis. https://www.gminsights.com/industry-analysis/circular-economy-solutions-market

• Research & Metric. (2025). Circular Economy 2025: Market Intelligence Insights for Business Leaders. https://www.researchandmetric.com/blog/circular-economy-2025-insights/

• Signify N.V. (2024). Annual Report 2024 and Climate Transition Plan. https://www.signify.com/global/our-company

• Michelin Group. (2024). Connected Mobility Services: Technical Documentation and Impact Assessment. https://business.michelinman.com/services-solutions

• World Economic Forum. (2024). Circular Economy and Climate Change: Quantifying Mitigation Potential. https://www.weforum.org/reports

• Gitnux. (2024). Circular Economy Statistics and Market Analysis 2024. https://gitnux.org/circular-statistics/

• Harvard Business School. (2023). Michelin: Tires-as-a-Service—Business Model Innovation Case Study. https://d3.harvard.edu/platform-rctom/submission/michelin-tires-as-a-service/