Circular economy is not just a way to reduce waste or save resources. It is a completely new logic for how value is created, maintained and reused over time. Despite this, circularity is often seen as a costly sidetrack rather than a strategic asset.
Much of this is because we still try to calculate circular business models with linear metrics. The result is that Return on Circularity often looks bad in the calculation, although in the long term it is crucial for both profitability and sustainability.
From innovation to investment via circularity
In a traditional model, Return on Investment is a measure of the relationship between what is invested and what is earned. Return on Innovation measures what the organization gets back on investments in developing new products and services. But Return on Circularity requires an even deeper system change. It is not just about improving the product, but reshaping the entire business model. Here, it is not enough to invest in a new production line. You also need to be able to count on takeback, servitization, design for circularity, environmental restoration and completely new value propositions.
A possible formula for Return on Circularity
To begin to understand how to measure the value of circularity, a formula can be based on several factors:
RoC = (D × R × E × L) / (I + C)
Where:
D = Design for circularity
R = Proportion of materials or components that are reused
E = Commitment to the organization and the value chain
L = Extended life of the product or service
I = Investments in transition
C = Costs for circular flows and infrastructure
This equation is based on considering circularity as a capacity rather than an end product. It is not the percentage of the product that is reused that determines, but how the entire system builds an ability to generate long-term sustainable value. It is a simplified model for understanding and communication, rather than an exact scientific indicator by current standards.
A linear model misunderstands the circular business
When a company goes from selling products to offering a sharing platform, the entire revenue logic changes. In a linear business, profitability rests on selling new, often in large volumes. But in a circular business, it’s about maximizing the use of what already exists. The company may make money on access, not ownership. The problem arises when you try to apply old key figures to the new model. Then it quickly looks like the business is losing profitability, even though it delivers great value for both customers and society.
An example is a platform for sharing tools. In a linear calculation, it’s bad that the products aren’t sold on a large scale. In a circular calculation, on the other hand, it’s good that the same product can be used by hundreds of people, which reduces the need for production, distribution and waste. But as long as we calculate circular profitability with linear tools, it will always look worse.
What circularity is really about
Becoming circular is not just about reusing materials. It’s about thinking through the entire life cycle of the product. How long does it last? How easily can it be dismantled and recycled? How much does the material degrade? Can it be restored without losing its function? Is it designed to be repaired, upgraded or reused?
It is also about what the product contributes to a larger context. Does it restore natural resources, reduce emissions, strengthen local communities?
These are the questions that build a circular capacity. But since they often do not fit into classic financial models, you also need to supplement with indirect indicators.
Indirect KPIs that show the way
To understand how well an organization is developing in a circular direction, you need to look at indicators other than just quantity. How much time and resources are spent on changing? How much commitment is there in teams and partnerships? How trusting is the dialogue with suppliers, customers and other actors in the value chain?
These factors often say more about future capabilities than what percentage of recycled materials are used today. To achieve a high Return on Circularity, cooperation, perseverance and learning are required.
How should you think about Return on Circularity?
First, you have to accept that profitability will look different at first. The transition is costly, and it takes time for new structures to pay off. Second, you have to measure the right things. Instead of chasing quick revenue, you should track how quickly circular capacity grows. How flexible are our business models? How robust are our supplier flows? How willing are customers to participate in new value offerings?
Return on Circularity also requires a different approach to investments. It is not just about money, but about investments in culture, relationships, technology and design. These are the factors that ultimately determine how much value the organization can create – not just for itself, but for the entire system in which it operates.
Counting on circularity is counting on the future. The sooner you start, the better prepared you are to create the value that tomorrow demands.
