What Is The Leasing Business Model? The Leasing Business Model In A Nutshell

Under the leasing business model, a company purchases a product and then leases it to a customer for a periodic fee. The seller passes the property of the item to the lessor, which is a financier, that enables a buyer (the lessee) to use the item for a given period of time. In the end, the buyer can exercise the option to buy the item at the current market rate. This agreement makes it possible for the seller to dispose of the item, for the financier to make a profit on it, and for the buyer to use it while avoiding total costs of ownership.

Understanding the leasing business model

Companies that utilize the leasing business model sell continuous access to a product or service over an agreed period.

The model normally involves three parties:

  1. The seller – the owner of the product or service that sells ownership of the item to a lessor in exchange for payment. Note that the seller may or may not retake possession of the item once the contractual agreement has ended.
  2. The buyer (lessee) – the entity that negotiates access to the product or service in exchange for a periodic payment to the lessor. Once the lease is up, the buyer sometimes has the option of purchasing the item at the current market rate.
  3. The financier (lessor) – a third-party that enters into an agreement with the lessee and provides it with the item for temporary possession. In essence, the lessor serves as an intermediary or facilitator.

Where does the leasing business model occur?

The leasing business model is most often seen in transactions involving the exchange of expensive physical goods, including:

  • Commercial and industrial fleet vehicles – including passenger vans, buses, box trucks, tractors, trailers, and delivery vans.
  • Manufacturing and industrial plant equipment – in industries notorious for expensive item costs, leasing arrangements may be in place for stamping and forming machinery, welders, conveyor systems, and factory infrastructure or floor space.
  • Restaurant and hospitality equipment – these include exhaust hoods, tables, seating, point-of-sale (POS) systems, and stoves. 
  • Medical and laboratory equipment – such as lasers, X-ray machines, CT scanners, and even surgical tables.
  • Municipal equipment – many local councils and authorities also lease equipment to reduce costs. Items include police cars, garbage trucks, and street sweepers.

Advantages of the leasing business model

Let’s now take a look at some of the advantages of the leasing business model for both the seller, lessee, and lessor.


  • Early revenue – leasing can help the seller meet a need for early revenue, even if some revenue must be shared with the lessee.
  • Relationship building – since many leasing agreements extend over long periods, the seller has time to build a sustainable and loyal relationship with a buyer.


  • Affordability – the most obvious benefit for a buyer is affordability. Many buyers are not willing to expose themselves to the risk of owning an asset outright while others simply cannot meet the high upfront cost. The leasing business model enables the buyer to pay in smaller monthly installments which can be budgeted for in advance.
  • Continuous upgrades – businesses that rely on the latest model equipment can easily upgrade when the current lease expires. This means they are never stuck with an obsolete model.


  • Increased sales – lease financing through a third party can help product manufacturers increase their sales. In these circumstances, the lessor is in a stronger position to negotiate a commission from the manufacturer.
  • Tax benefits – as the owner of the asset, the lessor can claim various tax benefits including depreciation and investment allowance to reduce their liabilities.

Key takeaways:

  • Under the leasing business model, a company purchases a product and then leases it to a customer for a periodic fee.
  • Leasing transactions normally involve three parties: the seller, the buyer (lessee), and the financier (lessor). The lessor purchases the product from the buyer and then sells access to the product to the lessee over a set period.
  • For the seller, the leasing business model gives them access to early revenue and the chance to build a loyal customer base. For the lessee, leasing allows them to avoid the risk and cost of purchasing an item outright. For the lessor, they may be able to negotiate a higher rate of commission with the product manufacturer and reduce their tax liabilities.

Tesla Case Study: leasing model to scale sales

Tesla has its own leasing arm, which is a critical distribution ingredient, to enable the company to scale its sales.

As an electric automaker and builder of sports cars and now trucks, Tesla’s competitors comprise companies like Ford, Mercedes-Benz, Porsche, Lamborghini, Audi, Rivian Lucid Motors, Toyota, and more. At the same time, Tesla is an electric energy production and storage company (SolarCity); it competes with Sunrun, SunPower, and Vivint Solar. And as an autonomous driving company, it competes with companies like Zoox, Waymo, and Baidu with the self-driving software.

Indeed, Tesla’s leasing arm generated $1.6 billion in revenues in 2021, but most importantly this enables Tesla to make its products accessible to more people.

Indeed, there are a few key elements to understand why leasing matters in this case:

  • Make the product accessible: a first element is about distribution. By enabling customers to lease Tesla vehicles, the company can make the car affordable also to people that otherwise wouldn’t be able to afford it.
  • Leasing coupled with Insurance: Tesla is able to adjust the price of the lease also based on the driving behavior of drivers, thus making it possible for them to get the vehicle at a lower expense, by improving their driving.
  • Build a new financing arm: when you have a valuable product, it becomes easier to build a service business around that product. The financing arm, which in 2021 generated $1.6 billion in revenues, has the potential to grow many times over, coupled with the scale up of the company’s operations. And this is also a business segment with potentially high margins, that can be also used to further scale the company.

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Related Business Model Types

Platform Business Model

A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.


A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
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