IBA editorial team The circular economy needs to make sense not only from an environmental perspective, but also from an economic one. This is precisely where the Circular Economy Business Case Calculator, developed by the Wuppertal Institute as part of the European R‑evolve research project, comes in. The Excel-based tool helps companies assess the economic viability of circular business models and compare different scenarios.
Niklas Hoffmann and Martin Perau from the Wuppertal Institute recently presented the Calculator to the IBA Sustainability Circle. In this interview with IBA Forum, they explain which questions it can help companies answer, why logistics can be a decisive factor in the economic viability of circular business models, and what insights can be gained by comparing different scenarios.
Mr Hoffmann, Mr Perau, why is there a need for a Business Case Calculator for the circular economy?
Martin Perau: In the R‑evolve project, we are looking at how the furniture industry can make the transition to a circular economy. One important aspect is the economic perspective. After all, circular business models need to not only make environmental sense, but also be economically viable for companies. That is exactly why we developed the Circular Economy Business Case Calculator. It is designed to help companies assess the economic viability of a circular business model and explore different scenarios. We deliberately use established business metrics that are familiar from corporate and management accounting contexts. This makes the results transparent and allows them to be compared with linear business models.
Which circular business models can be analysed using the tool?
Niklas Hoffmann: At present, seven different R‑strategies can be modelled: Reuse, Repair, Refurbishment, Remanufacturing, Repurpose and Recycling, as well as rental models in the sense of Rethink. Some of these can be differentiated further. With Repair, for example, a distinction can be made between repairs carried out in-house and those performed by a service team at the customer’s premises. In the background, the tool maps the relevant material, cost and revenue flows. Companies enter the data that is relevant to their specific use case, and the economic metrics are then calculated on this basis.
How much effort is involved for companies in gathering the necessary data?
Niklas Hoffmann: The tool starts by configuring the respective business case. A short questionnaire is used to define what is to be analysed and which R‑strategy is being applied. Only the data fields that are actually relevant to that particular case are then displayed. It was important to us that companies should not be discouraged if they do not yet have all the individual data available. Not every field has to be completed. Instead, the tool highlights which data points may be relevant when assessing economic viability. Additional cost items can also be added if a company needs to take account of specific factors that are not included in the standard model.
What role does logistics play in economic viability?
Niklas Hoffmann: A very significant one. Our experience from the pilot projects shows that logistics can be one of the key factors determining the economic viability of circular business models. Compared with linear models, there are additional and sometimes more complex flows of goods. Products may, for example, need to be collected from the customer, transported, inspected, refurbished if necessary and then delivered again. The Calculator therefore allows logistics to be modelled at different levels of detail. Companies can work with simplified assumptions or record individual costs more precisely, depending on how detailed they want their business case analysis to be.
Can you give us a specific example of what such a calculation might look like?
Niklas Hoffmann: During the presentation to the IBA Sustainability Circle, we used a hypothetical example involving the take-back and refurbishment of office chairs. A company takes back used chairs, refurbishes them and resells them. Costs arise at various stages: take-back and logistics, inspection and refurbishment, labour and any spare parts required, and finally packaging and shipping. These costs are then set against the expected sales revenue. The tool can show, for example, how higher or lower sales volumes, different selling prices or changes in costs affect economic viability. This makes it possible to compare different scenarios directly.
What results do companies receive at the end of the process?
Niklas Hoffmann: We use established financial metrics such as net present value, internal rate of return and payback period. Put simply, they answer three questions: How much money can the business case generate? What return can be expected? And how long will it take for the initial investment to pay back? The tool also shows cash flow and breaks down where the main costs arise. This is particularly useful because it enables companies to see not only whether a business model is economically viable, but also where they can make changes to improve it.
What could that mean specifically when refurbishing an office chair?
Niklas Hoffmann: If the analysis shows, for example, that a large proportion of the costs arise during the refurbishment process itself, the company can take a closer look at the reasons. Is it due to high labour requirements? Are a large number of spare parts needed? Could a higher degree of automation help? The original product design can also play a role. If a chair is designed from the outset to be more durable, repairable or easier to disassemble, fewer spare parts and less labour may be required when it is refurbished later on. In this way, the economic analysis ultimately also connects different stages of the product life cycle.
Can the Calculator also be used to compare different strategies, such as in-house and outsourced repairs?
Niklas Hoffmann: Yes. Different configurations can be calculated separately and then compared. At present, however, multiple R‑strategies cannot be compared simultaneously within a single configuration. A Refurbishment case and a Remanufacturing case, for example, would be calculated separately. As the results are based on comparable metrics, however, they can subsequently be compared. The tool can also be used to examine whether repairs should be carried out in-house or outsourced.
How robust are the calculations at this stage? Has the tool been tested with companies?
Martin Perau: As part of R‑evolve, we have already worked with seven companies and seven business cases. The companies were at different stages: in some cases, we analysed specific business models with a clearly defined question, while in others the concepts were still at an earlier stage. Feedback from these pilot applications is continuously incorporated into the tool’s further development. So the tool is not a finished product. That is precisely why we are interested in seeing it used by other companies as well.
Can the Calculator also be used if a company does not yet have a fully developed business case?
Martin Perau: Yes, and we see that as one of its key benefits. The tool can also serve as a kind of testing ground. Companies can work with different assumptions and examine the conditions under which a business model could become economically viable. What happens, for example, if sales volumes change? What is the impact of higher costs? Or what price would be necessary for a model to become viable? At present, a period of up to five years can be considered. This also makes it possible to model business cases that require a certain ramp-up period and only benefit from economies of scale at a later stage.
What are the next steps for the Circular Economy Business Case Calculator?
Niklas Hoffmann: We are continuously developing the tool. At the time of the presentation, we are already working on the next version, which will incorporate further findings from the pilot projects. Looking ahead, we would like to add further functionalities that will make it easier to assess, for example, how changing conditions affect economic viability. Above all, we want the Calculator to be used in practice. We therefore welcome feedback – both on what works well and on what companies feel is still missing. That is the only way we can continue to improve the tool.
Mr Hoffmann and Mr Perau, thank you for the interview.
