Circular Business Models: What They Are and Why They Matter 

Unlike the traditional linear model of ‘take, make and dispose’, a circular economy means we keep our products and materials in use for as long as possible. With this approach, we maximise the value of what we already have through better design and manufacturing and maintaining, reusing, refurbishing, or recycling our items. Read more about the circular economy in this blog post.

The circular economy can also involve implementing circular business models, which allow for the generation of revenue for an organisation without using additional raw materials. The concept relies on a circular, closed-loop system, where organisations make money without using more materials.

Types of Circular Business Models 

The Ellen Macarthur Foundation, Circular Business Models for the Built Environment report outlines how circular business models can be grouped into three different categories: design, use and recovery. Examples include: 

Design 

• Product and process design – This involves planning and designing to improve the service life of components and products. At the design stage, organisations consider how a product is maintained, repaired, upgraded, refurbished, or remanufactured.  

• Circular supplies / inputs – This involves developing new materials to enhance renewable energy, bio-based, less-resource intensive or fully recyclable materials. By thinking innovatively at the design stage, you can enhance product sustainability and performance. 

Fairphone is an example of both – they produce phones using fair and recycled materials, designed to be refurbished and repaired. 

Use 

• Sell and buy back – A product is sold, with the intention of it being purchased back after a period of time. Organisations may buy back one of their products, so they can re-sell it on again at a reduced price or for further use. Circular & Co, a coffee cup brand, run a take back scheme, offering a discount code to customers who return their product back and in turn, giving it a ‘new lease of life’. 

• Lifetime extension – This focuses on extending the service life of products and materials through solutions such as repair, maintenance, or upgrade. Think of products with a lifetime warranty! 

• Product as a service – Product ownership remains with the service provider, with the focus and revenue stream coming from the performance of the service. Signify, a lighting provider, offers ‘light-as-a-service’ where customers pay for the light they use. The service includes installation, maintenance, and repair, reducing overall cost for the customer. 

• Sharing – This service improves utilisation rates of a product, by offering shared use, access, or ownership. Think of car share schemes such as Enterprise car club. 

Recovery 

• Refurbish and maintain – This involves refurbishing and maintaining used products so they can be re-sold. Vivobarefoot have implemented a similar model by creating ReVivo, where they take back returns, refurbish, repair and sell on their products at a lower price. 

• Recovery provider – This involves offering take back schemes or collection services to recover useful resources. The Pallet Loop is an example of this in action, with pallets being recovered, repaired and reused. 

• Support lifecycle – This includes providing the spare parts or add-ons to support the lifecycle of products. IKEA allows for the ordering of smaller parts such as screws and plugs for free, as well as larger furniture parts, allowing customers to retain their item and keep it in use for longer. 

The Benefits 

Implementing a circular business model doesn’t just support waste reduction, it can bring value to you and your organisation. Here are some examples (but not an exhaustive list): 

1. Save money. Let’s consider daily life: renting an item of clothing from a rental site for a one-off occasion, will cost less than buying new and save you space. The same goes for your business. Need a drill to build some desks? Renting instead of buying one you’ll only use one, will save you money. 
2. Develop a secondary revenue stream. If your product is designed well, to be durable and long lasting, you could adopt a product-as-a-service or sell and buy back model. When your customer no longer needs the product, you can take it back, refurbish and sell it on again. 
3. Build long-term relationships. Offering services such as maintaining or repair encourages customer loyalty as they can rely on you. Providing them with a service which is both sustainable and cost-efficient is a win for both sides! 
4. Encourage innovation. Identify opportunities for improvement that allow you and your team to think of new, creative solutions. This allows collaboration that benefits both the environment and your organisation. 

Closing thoughts 

Embedding circular business models into your operations offers wide ranging benefits, from reducing costs to enhancing sustainability. Start by looking at what your organisation does and identify opportunities to implement circular economy principles in your everyday activities. 

Adopting a circular approach not only supports waste reduction, but it also makes business sense, leading to cost savings, new revenue streams, and strengthen customer relationships. With various circular models available, you can choose an approach that best aligns with your existing business structure, or the direction you want to go in. 

Interested in a free discovery call about embracing a circular economy? Get in touch with Lucy today.