Hardware/Device Cost Modelling
This use case explains how to model hardware and device costs, subsidies and margins for telecommunications and IT services businesses in Model Reef.
You will:
Represent devices and hardware bundles alongside recurring services.
Model hardware purchase costs, subsidies and financing where applicable.
Connect device sales and instalment plans to P&L and Cashflow.
Analyse device related margin and payback in combination with service revenue.
Model Reef is not a stock control or billing engine. It uses aggregated device and contract assumptions to generate financial and cashflow impacts.
When to use this pattern
Use this pattern when:
You bundle handsets, routers, set top boxes or other devices with service plans.
You subsidise hardware and recover costs through future service revenue.
Device economics are important to customer acquisition and retention decisions.
You need to forecast device related margin and working capital.
It is commonly paired with:
Recurring Services Revenue Model
Inventory Replenishment Cycles
Contract Renewal Forecasting
Architecture overview
Define device products and groupings
Decide how to group devices for planning purposes, for example:
By device type (phones, routers, set top boxes, other equipment).
By price band (entry, mid, premium).
By key manufacturer or platform where that matters commercially.
Set up Revenue and COGS variables, such as:
Revenue - Device - Premium Handsets.
COGS - Device - Premium Handsets.
Revenue - Device - Routers.
COGS - Device - Routers.
If you have device only channels, you can create separate branches to analyse those separately from bundled offers.
Link device volumes to subscriber and sales drivers
Starting from the Recurring Services Revenue Model, create drivers such as:
SIM Only vs Device Bundle mix per product or segment.
Device replacement cycles, for example every 24 or 36 months.
Proportion of gross adds taking a device bundle.
Calculate device units sold per period using:
Device Units Sold = New Bundled Subscribers plus Replacements.
Where you sell devices separately from service, add drivers for:
Standalone device sales volumes per channel or segment.
This links device volumes to the same commercial flows that drive recurring revenue.
Model device prices, costs and subsidies
For each device grouping, create drivers for:
Retail Price per device.
Upfront discount or subsidy (for example customer pays less than retail).
Wholesale Cost per device from suppliers.
Supplier rebates or volume discounts, expressed as reductions in effective unit cost.
Construct revenue and COGS like this:
Device Revenue = Device Units Sold × Customer Device Price.
Device COGS = Device Units Sold × Effective Wholesale Cost.
Subsidy per unit is then the difference between wholesale cost and customer price, which can be recovered through future service margins connected via the recurring revenue model.
Include instalment or financing plans where relevant
If you offer devices on instalment plans rather than upfront payment, define drivers for:
Instalment term (for example 12, 24 or 36 months).
Instalment amount per period.
Interest or financing charges, if any.
Default or non payment assumptions if you want to approximate credit risk.
You can represent instalment plans as:
Revenue variables that spread device payments over the term, and
Cashflow timing that reflects when cash is collected versus when devices are paid for.
This will increase receivables and extend device related cashflow impacts over the life of the instalment plan.
Connect device costs to inventory and working capital
If you carry device inventory, combine this pattern with Inventory Replenishment Cycles to approximate:
Inventory on hand by device grouping.
Purchase timing relative to sales.
Supplier payment terms.
This will drive:
Cash outflows for device purchases.
Inventory balances and turnover.
Working capital tied up in device stock.
Balance device purchases and stock levels against expected sales to avoid over or under stocking in scenarios.
Use scenarios for pricing, subsidy and mix strategies
Clone the base model into scenario models to test:
Higher or lower device subsidies.
Different retail pricing and instalment structures.
Shifts in mix between SIM only and device bundles.
Changing device replacement cycles.
Different supplier cost and rebate structures.
In each scenario, adjust:
Retail price, subsidy and wholesale cost drivers.
Bundle mix and replacement cycle drivers.
Instalment term and payment assumptions.
Inventory and supplier term drivers.
Compare scenarios using:
Device margin and total margin inclusive of service revenue.
Customer lifetime value where you choose to combine service and device economics.
Cashflow and working capital requirements.
Sensitivity of profitability to subsidy and mix decisions.
Check your work
Device prices and costs align with commercial and procurement data.
Subsidy and instalment assumptions are consistent with actual offers.
Device volumes tied to subscriber flows are realistic.
Combined service and device economics support acquisition and retention strategies.
Troubleshooting
Related guides
Last updated