What Is A Circular Business Model?

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In this article, I’ll highlight the pressing need for firms to adopt a circular business model approach.

Most companies have not yet to embed real environmental and social sustainability into how they create, deliver, and capture value. Most companies are tend to cluster around recycling and incremental tweaks while the deeper shift to a circular business model is not a focus.

The fact is unsustainable models still dominate across all sectors, from fossil fuel dependence and excessive plastics to fast fashion. The problem with unsustainable business models is that they have built in obsolescence, wasteful systems, and exploitative supply chains. These companies are locked into finance and advertising choices that keep volume growing, but have a massive negative impact on the planet and in worse cases are negligent when it comes to considering fair sourcing.

The result is activities but no system level change, where firms adopt one narrow initiative and leave core behaviours untouched. A circular business model approach fundamentally requires systems thinking.

We need more attention on circular business model innovation that retires old production systems that are inefficient, wasteful and have a negative impact. This requires decisively moving toward net positive, regenerative ways of creating value across whole ecosystems, not just inside a single firm.

We need to treat unsustainable models as risks to be phased out, and prioritise developing a business model that helps reduce consumption of resources.

The figure below illustrates how we not only need to move from merely achieving efficiency and changing resource flows, but we need to change consumption behaviours, improve the environment and in turn have a positive societal impact.

Start with the problem

Imagine your supply chain as a river that floods in spring. Fresh water and silt arrive, the banks overflow, damage spreads downstream, and valuable sediment is left on the floodplain. Many companies spend heavily on clean up and very little on shaping the river.

Linear business models behave the same way. They focus on the first sale, then let useful products, parts, and materials spill into waste, markdowns, and missed service revenue.

A circular business model takes a complete holistic view of the cost of production from how it was produced including the social fairness and values in how sourcing frims treat and pay employees through to how products are design, produced and then finally dealth with at then end of their life.

So why does this matter now?

Costs keep fluctuating, new regulations keep piling up, and everyone wants to know exactly where products come from and where they end up. Customers and investors are both asking these questions.

Meanwhile, it’s getting harder and harder to make money selling products. Companies are dealing with more rules than ever, mounting pressure to meet sustainability goals, and the constant worry that their environmental reputation could take a hit if they mess up.

While companies have green policies many are simply ‘greenwashing’, doing the minimal required and some even then make claims above and beyond the reality of their sustainable practices.

Example Fashion Industry

H&M faced significant public backlash and regulatory scrutiny in 2022-2023 when the company was accused of greenwashing through its “Conscious Collection” marketing campaign. Despite promoting sustainability and circular fashion initiatives, investigations revealed that H&M continued to produce massive volumes of clothing with minimal actual environmental improvements, while their recycling claims were largely misleading.

The company was fined by Dutch authorities for making unsubstantiated environmental claims, and faced widespread criticism from environmental groups and consumers who pointed out the fundamental contradiction between H&M’s fast fashion business model, which encourages overconsumption and generates enormous textile waste, and their sustainability marketing.

The controversy highlighted how the company’s failure to genuinely commit to circular economy principles, instead opting for superficial green marketing while maintaining unsustainable production practices, severely damaged their reputation among increasingly environmentally conscious consumers and led to calls for boycotts across social media platforms.

H&M faced several costly consequences including legal expenses from class-action lawsuits filed in 2022 alleging “false” and “misleading” sustainability marketing, and the company had to remove its environmental scorecards from its website following the Quartz investigation that exposed the misleading nature of their sustainability claims.

The dominant logic of today’s business models

Most modern business model thinking is firm centric. Teams craft a value proposition and design around desirability, feasibility, and viability, then optimise the familiar building blocks. That logic can create strong businesses, yet it remains incomplete for circular ambitions.

Why does it fall short? In contrast to a circular business model, a firm focused model narrowly focuses on value for the firm and a selective set of supply partners. In contract a circular business model requires thinking about a much broader ecosystem of firm including with users, collectors, refurbishers, logistics providers, local authorities, resale platforms, and often actors from other markets.

What lens helps leaders see beyond the firm? When shifting to a circular business model leaders need to think in arenas, not industries. An arena is the space where different players help customers accomplish a specific job, regardless of sector boundaries. Your fiercest competitor or your most important collaborator may sit in a different sector if they solve the job better. When you define the challenge at arena level, the solution usually requires an ecosystem of interactions rather than bilateral contracts.

The Circular Business Model

A circular business model provides a coherent design for how your organisation creates, delivers, and captures value so that products, parts, and materials keep their usefulness across multiple cycles. It shifts the value logic from firm centric optimisation to ecosystem enablement. This requires attention to how you need to preserve value at every stage of the lifecycle and impact of a product.

In simple terms, the circular business model changes material flows and the incentives that guide many actors, not only the firm.

A successful circular business model should actually reduce how much new stuff you need to make, while squeezing more value out of the materials you’re already using.

Set clear targets for your chosen product line: How much virgin material will you replace this year? How much more value are you getting from each pound or ton of material compared to last year? Maybe you’re aiming to cut new plastic use by 30% while doubling how many times each piece of plastic gets reused.

Then track these numbers with the same attention you give to sales and profit margins. Most companies obsess over revenue growth but have no idea if they’re actually getting better at using materials efficiently.

For example: Are your refurbished products lasting longer than they used to? Are customers keeping products in use longer before returning them? Are you recovering more valuable materials from each product at end of life?

If your circular business model is working, you should see both metrics improving over time: less new material coming in the front door, and more value extracted from the materials already in your system.

Rather than listing every possible move here, choose one primary flow intention for the next cycle and use it to align design, operations, data, and partner incentives. The specific flow plays appear in the loop overview that follows, which gives quick examples you can act on.

The Circular Business Model

7 Ways To Improve A Circular Business Model

A circular business model becomes real when you decide which flow will change and how. Here is a short guide, with one example each.

1. Narrow the loop

A circular business model that focuses on narrow the looop uses fewer materials and less energy per outcome by improving design and operations. Frugalpac creates cellulose-fiber bottles that are 94% chemical-free and 5 times lighter than glass bottles, requiring less fuel to ship and reducing the carbon footprint by 84% compared to glass bottles. The bottles are made from 94% recycled paperboard with a food-grade pouch inside.

Circular business model takeaway: Pick one product where material or energy intensity can fall without harming performance, then verify the saving at the point of use.

2. Slow the loop

Make products last longer by building them tough, fixing them when they break, upgrading them over time, and rebuilding them to work like new again.

Look at Patagonia. Their jackets and outdoor gear are built to last for years of heavy use. When something rips or breaks, they don’t want you buying a new one. Instead, they offer free repairs at their stores or mail-in service. Need a new zipper? They’ll fix it. Torn seam? They’ll stitch it up. They even sell patches and repair kits so you can fix minor tears yourself.

For bigger issues, they have their Worn Wear program where they take back used Patagonia gear, refurbish it, and sell it at lower prices. Your old fleece that you’ve outgrown gets cleaned up and sold to someone else who’ll get years more use out of it.

The result? People wear the same Patagonia jacket for 10, 15, even 20 years.

Circular business model takeaway: Publish one long life design rule per product generation and link it to a service contract that funds repair and upgrade.

3. Close the loop

The focus for a circular business model could be to return materials at end of use and feed them back into production at a high enough quality for a product. Armedangels operates a takeback system where they collect “rejected, forgotten and worn out Eco-Fair Fashion” which is then turned into recycled fiber, reinforced with sustainable fiber in yarn, and then made into new clothing. They use high-quality fiber-to-fiber recycling from shredded old clothes to make new organic cotton fibers and then turn these into new garments.

Circular business model takeaway: Add identifiers to priority materials and set quality gates in reverse logistics so purity stays high.

4. Regenerate the loop

Another approach towards developing a circular business model is to focus on regeneration. Take a brand like Tropicfeel. Instead of using synthetic rubber made from petroleum, they source natural rubber from farmers who grow rubber trees alongside other crops like coffee and cacao. This agroforestry approach means the land stays healthy instead of being stripped bare for single-crop plantations.

But they go further than just buying better materials. They actually fund projects to restore degraded farmland in their rubber-growing regions. They help farmers plant cover crops, use composting techniques, and reduce chemical inputs. All of this puts carbon back into the soil instead of releasing it into the atmosphere.

Here’s the key part: they measure and report the results. They can point to specific plots of land and say ‘this soil now stores 2 tons more carbon per acre than it did three years ago.’ They track metrics like soil health, biodiversity, and water retention to prove their restoration efforts are actually working.

So when you buy their shoes, you’re not just getting a product made from sustainable materials. You’re contributing to actively healing the land where those materials came from. The business model isn’t just about doing less harm, it’s about making things better than they were before.”

This shows how regeneration goes beyond sustainability to actually improve environmental conditions.

Circular business model takeaway: Tie one core product to a regenerative metric and report it alongside financials.

5. Inform the loop

Making a circular business model work at scale means having detailed digital records of every product. Think of it like a medical chart that follows a patient through their whole life, except it’s tracking materials, parts, and repairs for products.

Fairphone puts detailed digital documentation behind every smartphone they make. When you buy one, you get access to complete information about every component inside. Need to replace the camera module? The digital records tell repair shops exactly which part number to order and how to install it. Battery dying? The documentation shows step-by-step how to swap it out yourself.

But here’s where it gets really smart: when independent repair shops scan the phone, they can instantly see its full repair history. Has the screen been replaced before? What parts are original versus aftermarket? This helps them diagnose problems faster and stock the right parts.

When the phone finally reaches end of life, recyclers scan the same digital passport to see exactly what materials are inside and how to safely disassemble everything. They know which components contain rare earth metals, which plastics can be recycled, and which parts need special handling.

The circular business model is enabled by using a single digital record that makes repair faster, helps shops stock the right parts, and ensures proper recycling. Without this tracking, the circular economy breaks down because no one knows what they’re dealing with.

6. Commercialize the loop

Make Money from Circulation, Not Just Sales

Instead of making money only when you sell new products, design business models where everyone profits when products keep circulating and staying useful. The goal is to untie growth from constantly needing new raw materials.

Philips doesn’t sell light bulbs to big office buildings anymore. Instead, they sell lighting as a monthly service. Companies pay for the light they actually use, not the physical fixtures.

Here’s how everyone wins when the lights keep working:

• Philips gets steady monthly revenue instead of one-time sales
• Customers pay less upfront and get guaranteed lighting performance
• Installation partners earn ongoing maintenance fees, not just installation
• When LED panels finally wear out, recycling partners get paid to properly process the materials

To make sure products come back instead of ending up in dumpsters, Philips keeps ownership of all the fixtures. They have strong incentives to design lights that last longer and are easier to upgrade. When technology improves, they swap out old components and refurbish them for smaller customers.

The recycling partners even get revenue sharing bonuses when they recover high-value materials like rare earth elements. Refurbished lighting comes with the same performance guarantees as new equipment, so customers trust buying it at lower prices.

Circular business model takeaway: Choose one offer and map the revenue possibilities across the ecosystem – examples include using pay per use or rent instead of buy for customers, and revenue sharing plus buy back credits for partners, so every party is paid when the loop performs.

7. Champion the loop

Making a circular business model work means getting customers genuinely excited to participate, not just guilting them into it. People need to see clear benefits and feel good about choosing the circular option over buying new.

Eileen Fisher turned their take-back program into something customers actively look forward to. Here’s how they make circular participation feel rewarding:

In-Store Experiences: They host “Renew Workshops” where customers learn to redesign and refresh their old Eileen Fisher pieces. You bring in a dress that feels outdated, and their design team helps you restyle it or gives you ideas for wearing it differently.

Immediate Rewards: Bring in any old Eileen Fisher garment and get $5 credit instantly, no matter the condition. The credit works on both new and refurbished items.

Personal Impact Dashboard: Their app shows you exactly what happened to items you returned. “Your silk blouse was cleaned and resold to Sarah in Portland. Your wool sweater was turned into new yarn that made 3 new scarves.”

The Results: They have one person specifically accountable for circular participation metrics: 25% return rate target, 60% of customers participating multiple times, and an 8+ Net Promoter Score specifically for circular services.

Customers started viewing Eileen Fisher stores as places to refresh their wardrobe, not just buy new clothes. The program became so popular they opened dedicated Renew stores that sell only refurbished pieces.”

This shows how making circular participation feel special and rewarding drives actual behavior change.

Circular business model takeaway: Give one leader end to end accountability for adoption, with targets on return rate, repeat participation, and customer advocacy for circular services.

How the value in a circular business model really differs

A circular business model treats value as shared across actors, not captured by the firm alone. Profit still matters, yet value also includes stable access to secondary inputs, resilience against price shocks, compliance readiness, customer trust, and improvements to natural and social capital.

Why does this shift matter in practice? Loops only close when every actor benefits enough to participate.

Prices, contracts, data sharing, and incentives must be designed so customers return products, logistics partners protect quality, refurbishers recover high yield, and marketplaces position secondary offers as credible alternatives.

Takeaway: Put partner value into your model logic and measure it, because no partner benefit means no loop.

The simple logic of circular value

Think of value as a stack that must fit together. Customer value is uptime, performance, and lower total cost of use across time. Network value is what partners receive and contribute so loops close at quality and at scale.

System value is contribution to resource decoupling and social outcomes that regulators and investors watch. Financial value is a portfolio that blends revenues, avoided costs, and asset yields across multiple cycles.

So why frame value this way? It prevents teams from optimising one layer while the others break. A lively resale program that irritates channel partners or a service plan that customers do not adopt will not displace primary output.

Takeaway: Ask every initiative to show customer, network, system, and financial value on one page, with clear connections between them.

Anchor the model in the Value Proposition

The proposition is the spine that holds everything together. State how the offer preserves value through durability, serviceability, remanufacturing readiness, or high quality recycling. Put return pathways into contracts and customer promises so assets come back in predictable volumes and condition. Some products should live longer, others should be replaced earlier when use phase efficiency gains outweigh embodied impacts.

Key point: Different ecosystems demand different actors, resources and activities.

What is the first design decision? Decide which flow you will privilege for the next model update, then align engineering, procurement, and service roadmaps to that choice.

Key Shift To Develop Your Circular Business Model

1. Choose patterns with intent, not fashion

Circular patterns cluster in three families. Product service models such as rental, lease, subscription, pay per use, and pay for performance raise utilisation and keep you close to the customer. Reuse and resale models use buy back, refurbishment, and remanufacturing to keep products at their highest utility. Recovery models deliver repair and high quality recycling when higher options are not feasible.

How do you choose well? Match patterns to product architecture, customer use cycles, willingness to return, and partner capability, then combine where synergies exist.

Takeaway: Build a pattern matrix by product family and pick one primary and one complementary pattern to pilot within ninety days.

2. Run the operating system that makes it real

Treat circularity like an enterprise operating system rather than a single app. Design for X removes barriers to repair, disassembly, reuse, remanufacturing, and recycling. Reverse logistics defines how assets return, who collects them, and how identity and quality are protected. Product service models align incentives for maintenance and uptime. Secondary markets position, price, and warranty recovered assets so they truly replace primary output. A data spine tracks condition, location, and provenance across partners. Network governance sets roles, incentives, and value shares.

How do you keep this coherent as volumes grow? Create one operating review for circular outcomes that sits beside sales and operations planning.

Takeaway: Name one accountable owner for forward and reverse flows and run a monthly circular operating review with shared targets.

3. Let platforms accelerate the loops you choose

Platforms are powerful when they remove a specific friction. Sensors and identifiers show where assets are and what state they are in. Platforms enable access models and transparent resale. Analytics lift recovery yields and utilisation. Additive manufacturing shortens repair and upgrade cycles and supports modularity.

Which digital bets come first? Pick the bottleneck that breaks your chosen loop, for example no visibility of asset condition, and build only the capability that fixes that break.

Takeaway: Make a simple rule for tech proposals. Each one must name the loop friction it removes and the metric it will move.

4. Add sufficiency without losing growth

Sufficiency moderates unnecessary throughput while protecting customer value. Design for longevity and upgrade paths, price to reward longer use, and communicate value in use rather than constant novelty. Growth then comes from service, data, and trust rather than only from volume.

How do you avoid a revenue dip during the shift? Treat the business like a portfolio hedge. Keep new unit sales where they create real system benefit and grow service and secondary revenues where lifetime value is higher.

Takeaway: Add a sufficiency lens to portfolio reviews and give credit for lifetime value per unit, not only units sold.

5. Lift ambition from efficiency to regeneration

Efficiency matters, yet restoration creates the long term advantage. Regenerative models place planetary health and community wellbeing into the proposition and the scorecard. They co create value with nature and local partners through practices like regenerative agriculture, nature positive materials, and habitat repair.

So why step into regeneration now? Finance, policy, and customer sentiment are moving toward net positive outcomes, and early movers will shape standards and costs.

Takeaway: Launch one regenerative pilot tied to your core product and set multi capital metrics from day one.

6. Collaborate across the boundary

Most loops close beyond the firm. Decide what to internalise and where to collaborate. Choose open or closed approaches for each activity and do the boundary work that shifts identity, competences, and power. Industrial symbiosis and shared logistics often unlock economics that no single firm can reach.

How do you make collaboration practical and fair? Begin with a shared substitution target and a clear split of roles, value shares, quality standards, and data rules.

Takeaway: Create a partner charter that links responsibilities for take back, data, and quality to incentives and dispute paths.

7. Name the risks and build the win

Use a simple pattern to turn risk into advantage.
Name the risk: asset returns fall short and secondary output fails to replace primary output.
Why it matters: costs rise, timelines slip, trust erodes.
Solvable path: strengthen adoption incentives, tighten quality gates in reverse logistics, and reposition secondary offers so they are credible alternatives rather than inferior bargains.
Upside: once substitution is real, virgin input exposure falls, margins stabilise, and service relationships deepen.

How do you make this stick? Treat adoption, quality, and positioning as the revenue engine, not as an afterthought.

Takeaway: Stand up a risk board that owns adoption, quality, and substitution metrics and can adjust incentives fast.

8. Measure what proves the model

Measurement turns intent into discipline. Track adoption and return rates by segment, recovery yields and quality, asset utilisation across cycles, secondary sales and avoided costs, and soft indicators such as partner compliance and customer trust. Add multi capital accounting so environmental, social, and intellectual value sit alongside financials.

What cadence works? Monthly for operating indicators, quarterly for portfolio choices, and annual for multi capital progress, all tied to corrective actions.

Takeaway: Require every initiative to report substitution achieved and utility per unit of material, not only revenue and margin.

A ninety day plan that starts small and scales

You do not need to boil the ocean. You need one clean start.

Days 1 to 30, pick one product line, map current flows, and choose one flow principle with an explicit substitution goal.

Days 31 to 60, pilot one return channel and one secondary pathway with two partners and a defined segment, instrument assets for identity and condition, and set joint quality standards.

Days 61 to 90, launch a minimum viable circular business with an offer, clear incentives, contracts that secure returns, and a dashboard that shows adoption, recovery yields, economics, and multi capital outcomes.

What is the practical first move?

Appoint an owner for circular outcomes and book the first operating review, then work backward from that date. As a base point it needs to have a board member who is responsible for this, or a dedicated board member focused on sustainability. It needs to be a hard baked into the overall strategy.

Takeaway: Make progress visible with a named owner, a public clock, and a weekly ritual that celebrates returns, repairs, and remanufacture as wins equal to new sales.

Two analogies to keep teams aligned

Think of shifting to a circular business model as a transformation, as installing a new operating system. Applications like take back, refurbishment, and pay per use run better and with fewer crashes when core services for identity, data, and governance live in the system kernel.

In everyday terms, it is closer to gardening than to extraction. You prepare the soil, choose species that thrive together, prune for health, and compost what remains so nutrients return.

So why use these analogies at all? They remind teams that success comes from orchestration, not from a single heroic feature.

Takeaway: Use the operating system and gardening metaphors in briefings to align language and expectations across functions.

Closing thought: A circular business model design is a better way to guide capital, operations, culture, and governance so value compounds across cycles rather than leaking after the first sale. Start with one flow you will change, design the return path, prove substitution, and build from there.

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