For years, the agriculture sector has faced ongoing challenges that disrupt the industry: extreme weather, thin operating margins driven by inflation, and labor shortages. All of these are creating problems for farmers across the country.
Emerging and advanced technology could go far in helping farmers manage these mounting pressures, boost efficiency and productivity, improve output, prepare for the unexpected, and better manage their operations. Still, despite the benefits of agtech, adoption rates are lagging.
For example, roughly 50% of large row-crop farms are using some of the top technologies (auto-steer/GPS, soil and yield maps, and variable-rate technologies), while less than 25% of smaller farms are, according to the USDA report, Precision Agriculture in the Digital Era: Recent Adoption on U.S. Farms.
For the most part, it’s not because farmers are technology averse. In fact, many are open to innovation, but their finances are holding them back. According to a McKinsey and Company report, more than half (52%) of North American farmers said high costs was their biggest challenge to adopting technology. Forty percent responded that unclear ROI was their biggest challenge.
For agtech businesses, that’s quite the dilemma. These companies are increasingly critical for solving some of the industry’s biggest problems, but a significant chunk of their customer base can’t afford to outright purchase their solutions.
Empowering more farmers to purchase agtech
To get more agtech tools and systems into the hands of as many farmers as possible, businesses will need to think beyond traditional payment models and offer attractive financing or rental options.
That’s where a Hardware-as-a-Service (HaaS) option can benefit both the businesses and their customers. HaaS, a model where businesses bundle hardware, software, maintenance, and other services in one package, is growing in popularity.
In HaaS, AgTech businesses deploy their products or solutions to the customer’s location and then charge their customers a monthly recurring fee. The business sets the markup and terms.
For the agricultural industry, it’s a smart model because businesses gain a new service option to attract and retain customers, and customers don’t have to come up with sometimes exorbitant upfront costs or down payments to purchase the equipment.
Additional benefits for business owners include:
- Shorter sales cycle with customers
- Stable, predictable revenue
- ROI on the transaction because the business sets the markup price
- Converts a traditional one-time sale into monthly recurring revenue
- Flexibility to scale the program up and down based on each customer’s needs
- Expansion of market share in their industry (not enough AgTechs are offering this service!)
Additional benefits for customers:
- Convenient subscription that includes hardware, software and maintenance
- No longer need to take risks on expensive, depreciating equipment, and commit to a contract with a service level agreement instead
- More manageable payments spread out over time
- No longer required to purchase technology that becomes outdated quickly
- Easily refresh technology as needed—no need to worry about refinancing
- Convert a large capital expense to an operating expense
Overcoming a big challenge with HaaS
Offering a HaaS option is seemingly a win-win for businesses and their customers. For startups, however, one major issue could stand in the way: The upfront costs to manufacture and deploy often expensive agtech solutions are high, and it takes a while to recoup the investment because customers pay for the product over time.
In some cases, agtech organizations simply can’t afford to offer a HaaS option.
To help these businesses alleviate the financial strain of providing a HaaS option, companies such as CSC Leasing offer multi-million, multi-year lines of credit which provides businesses with the funds and liquidity to manufacture their solutions so they can then lease them to customers.
The business pays CSC back via monthly predictable payments. However, because the business controls the markup and what the customer pays for the product, it can begin generating revenue immediately.
To learn more about CSC HaaS or explore our other equipment financing solutions, contact our Regional Director Jordan Stowe today at +1 706-206-5622.