Medtech installed-base and consumables model
Installed base, utilisation, pull-through, sell vs lease. Roll an installed base of sold and leased systems, drive procedures and consumables from utilisation, separate recurring from capital revenue, account for leased systems as capital, and decide whether a system is worth more sold or leased.
Built in: Equity research and hedge funds, Investment banking, Private equity
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: medtech installed-base and consumables model.Updated 2 October 2026
Who builds it, and for whatThe model a medtech analyst builds for a company that places capital equipment and earns on its use: surgical systems, imaging, diagnostics analysers, dialysis machines. Equity research and dedicated healthcare funds build it to forecast procedure growth and recurring revenue; bankers and corporate development teams build it to value a device business; private equity builds it to test whether a shift to leasing will cost more cash than it earns.
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| A | B | C | D | E | F | G | H | I | J | K | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Assumptions | ||||||||||
| 2 | $m unless stated. Systems in units. Annual periods; FY0 is the base year. | ||||||||||
| 4 | Year | Unit | FY0 | FY1 | FY2 | FY3 | FY4 | FY5 | FY6 | Notes | |
| 5 | Year number | # | 0 | 1 | 2 | 3 | 4 | 5 | 6 | FY0 = 0. Drives annual price changes. | |
| 7 | Installed base | ||||||||||
| 8 | Sold systems, closing base FY0 | systems | 700 | ||||||||
| 9 | Leased systems, closing base FY0 | systems | 300 | ||||||||
| 10 | Placements | systems | 120 | 140 | 160 | 180 | 200 | 220 | New systems shipped, sold and leased. | ||
| 11 | Leased share of placements | % | 30.0% | 35.0% | 40.0% | 45.0% | 50.0% | 50.0% | |||
| 12 | Retirement rate, annual | % | 4.0% | % of opening base, sold and leased alike. | |||||||
| 13 | Utilisation | procedures per system | 190 | 198 | 205 | 212 | 218 | 224 | Annual. Applied to the average installed base. | ||
| 15 | Prices and costs per unit | ||||||||||
| 16 | System selling price, FY1 | $m per system | 1.80 | ||||||||
| 17 | System price change, annual | % | -2.0% | ||||||||
| 18 | Cost to build a system | $m per system | 0.85 | Cost of a system sold; capitalised cost of a system leased. | |||||||
| 19 | Consumables revenue per procedure, FY1 | $ per procedure | 1800 | Instruments and accessories. | |||||||
| 20 | Consumables revenue per procedure, annual change | % | -1.0% | ||||||||
| 21 | Consumables cost per procedure | $ per procedure | 500 | Held flat over the forecast. | |||||||
| 22 | Annual service fee, sold system | $m per system | 0.15 | Every sold system is assumed to carry a service contract. | |||||||
| 23 | Service cost, % of service revenue | % | 50.0% | ||||||||
| 24 | Annual lease payment, leased system | $m per system | 0.22 | Includes service. Held flat. | |||||||
| 25 | Annual service cost, leased system | $m per system | 0.05 | ||||||||
| 26 | Useful life of a leased system | years | 7 | Straight-line depreciation period; also the Placement horizon. | |||||||
| 28 | Operating costs, cash and tax | ||||||||||
| 29 | Research and development, % of revenue | % | 12.0% | ||||||||
| 30 | Selling, general and administrative, % of revenue | % | 30.0% | ||||||||
| 31 | Tax rate | % | 21.0% | ||||||||
| 32 | Net working capital, % of revenue | % | 18.0% | ||||||||
| 33 | Revenue, FY0 | $m | 640.0 | Sets opening net working capital and FY1 growth. | |||||||
| 34 | Discount rate, placement analysis | % | 9.0% | Annual. Used on the Placement sheet only. | |||||||
Select a cell to see its row, its schedule and the type of cell. Font colours: blue for inputs, black for formulas, green for links to other sheets. Scroll sideways to see every period.
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Medtech installed-base and consumables model: the workbook
Excel workbook with working formulas, no macros and no external links. Work with it above first; it is the same model as the preview.
What the base case says
- Installed base, end of FY6
- 1,719
- Revenue, FY6
- $1,095.9m
- Recurring share of revenue, FY6
- 83.7%
- Gross margin, FY6
- 58.2%
- Operating margin, FY6
- 16.2%
- Free cash flow, FY6
- $100.0m
- Lifetime value, sold system ($m)
- 2.57
- Lifetime value, leased system ($m)
- 1.25
- Break-even annual lease payment ($m)
- 0.48
Read from the workbook as served, every input at its default. Periods: FY0, FY1, FY2, FY3, FY4, FY5, FY6. The figures are invented and move with whatever you type in.
What this model is
A six-year model (FY1 to FY6, from an FY0 base year) of a surgical-systems company that sells or leases capital systems and earns recurring revenue from each installed system.
It builds the installed base, procedures from utilisation, and equipment, consumables, service and lease revenue through to operating profit and free cash flow, and shows how a higher leased share changes revenue, margin, cash flow and the recurring share.
The Placement sheet compares the economics of selling and leasing one system: lifetime value, the break-even lease payment and the payback on a leased system.
Seats: Equity research and hedge funds, Investment banking, Private equity.
Careers that do this work: equity research, hedge funds, investment banking, venture capital, private equity.
How the schedules connect
Every row in the workbook is tagged with the schedule it belongs to; the inspector above shows the tag when you click a row. These are the schedules this model is made of and where each one lives.
Installed base and utilisation
Systems shipped, retired and in use, and procedures
Assumptions, rows 8–13 · Installed Base, rows 6–9 · Installed Base, rows 12–15 · Installed Base, rows 18–23 · Installed Base, rows 26–29
Consumables pull-through and recurring revenue
Instruments per procedure, service, leases, margins
Assumptions, rows 16–25 · Revenue, rows 6–7 · Revenue, rows 10–14 · Revenue, rows 17–20 · P&L, rows 6–11 · P&L, rows 14–18 · P&L, rows 21–24
Capex and depreciation (PP&E roll-forward)
Opening, plus capex, less depreciation, closing
P&L, row 9 · Cash Flow, rows 6–8 · Cash Flow, rows 11–12
Working capital schedule
Receivables, inventory and payables in days
Assumptions, rows 29–33 · Cash Flow, rows 9–10
Placement economics: sell or lease
Lifetime value of a system sold or leased, payback
Assumptions, row 26 · Assumptions, row 34 · Placement, rows 5–9 · Placement, rows 12–19
What you should be able to explain
- Why a medtech company with products on the market is valued on its installed base and utilisation rather than on probabilities, and why recurring revenue earns a higher multiple than system sales.
- How procedures are the average installed base times utilisation, and how consumables, service and lease payments are pulled through from them.
- Why a leased system, treated here as an operating lease, is capitalised and depreciated through the cost of lease revenue rather than recorded as a sale, and what that does to revenue, margin and free cash flow.
- Why a lease is worth less than a sale at the base-case terms, and why companies offer one anyway: to win placements a capital sale would not.
- How the lease payment at which leasing matches selling is found, and what it says about a company’s pricing.
What a reviewer looks for
- Procedures driven by the closing installed base rather than the average, which overstates growth in a year of heavy shipments.
- Leased systems booked as system revenue, or their cost left in cost of goods rather than capitalised.
- Recurring revenue reported without the installed base and utilisation behind it, so a price rise looks like volume.
- Comparing a lease with a sale on revenue rather than on lifetime cash value.
- No retirements, so the installed base only ever grows.
Conventions this workbook uses
Stated on the cover sheet too. A model is only as trustworthy as the decisions it tells you it made.
- Systems are placed evenly through the year, so procedures, service revenue, lease revenue and depreciation use the average installed base, (opening + closing) / 2. Retirements are a fixed share of the opening base, for sold and leased systems alike.
- Utilisation (procedures per system a year) applies to the average installed base, sold and leased. Procedures are in thousands; consumables (instruments and accessories) revenue = procedures x revenue per procedure.
- Every sold system is assumed to carry a service contract. Lease payments include service, so leased systems earn no separate service revenue.
- Leased systems are accounted for as operating leases by the company as lessor: the system stays on the balance sheet at its cost to build, lease payments are recognised as revenue over time, and straight-line depreciation over the useful life is charged to cost of revenue. A leased system never generates equipment revenue. Sales-type lease accounting is not modelled.
- A higher leased share therefore lowers revenue and free cash flow and raises the recurring share. Gross margin rises at first, as low-margin equipment revenue falls, then declines as depreciation of leased systems builds.
- Depreciation is charged on the whole average leased base, including the FY0 base, at the current cost to build; systems are not tracked by age. Other capital spending is assumed equal to its depreciation and is excluded from both.
- Tax is charged on operating profit. There is no interest or financing.
- The Placement sheet is a pre-tax, per-system cash view at FY1 prices and utilisation, held flat over the useful life and discounted at the placement discount rate. It is a decision aid, not a forecast.
Build it yourself
The starter workbook
The Installed Base sheet has been cleared: opening base, placements, retirements and closing base for sold and leased systems, the average base, utilisation and procedures. Rebuild it from the Assumptions sheet. The Checks sheet shows when the installed base rolls forward in every year.
Blanks: Installed base and utilisation. Free with any account. Compare with the worked model when you are done: download above.
The path around this model
Understand it, drill it, read the build, then apply it to a real company.
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How to Build a Three-Statement Model That Actually Balances
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Financial Modelling Best Practices: The Conventions That Make a Model Auditable
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Vocabulary: Installed Base, Razor-and-Blade Model, Pull-Through, Gross Margin.
Questions about this model
What is the razor-and-blade model in medtech?
A system (the razor) is placed with a hospital at a low margin or none, and the company earns most of its profit on the instruments and accessories used in every procedure (the blades), plus service. Here 78% of FY1 revenue is already recurring, rising to 84% by FY6, and 63% of a sold system’s lifetime value comes after the sale.
Is it better to sell a system or lease it?
At the terms in the base case, selling. A sold system is worth $2.57 million over its life against $1.25 million leased, and the lease payment would have to rise from $0.22 million to about $0.48 million a year to match. Companies lease anyway because many hospitals cannot fund the capital, so a lease wins a placement that would otherwise not happen; it should be judged against no placement, not against a sale.
What does leasing do to revenue, margin and cash flow?
It lowers revenue and free cash flow in every year: a leased system books no sale, and its cost to build goes out as capital spending when it is placed. With no new leases, FY3 revenue would be $927 million rather than $824 million and free cash flow $140 million rather than $90 million. Gross margin is subtler. System sales are the thinnest line, so losing them lifts the blended margin at first; depreciation on a growing leased fleet then pulls it below what selling would have given by FY6.
How is this different from the biotech rNPV model?
The biotech model values products that may never reach the market, so it runs on stage probabilities and launch curves. This one values products already on the market, so it runs on the installed base, how hard each system is worked, and what it pulls through. Healthcare investing needs both.
What does it cost?
Nothing to preview: the whole workbook is on this page, and a free account works with it online, every formula included. Every starter workbook downloads with a free account. L3VLUP Plus ($4.99/month) keeps one worked model each billing month, yours for good, and L3VLUP Pro ($25/month) keeps every one.
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