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.
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 keeps for any 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.
| A | B | C | D | E | F | G | H | I | J | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Assumptions | |||||||||
| 2 | Blue cells only. $ millions except per-system and per-procedure figures; systems in units; procedures in thousands. FY0 is the base year. The company is invented. | |||||||||
| 4 | Year | Unit | FY0 | FY1 | FY2 | FY3 | FY4 | FY5 | FY6 | |
| 5 | Year number | # | 0 | 1 | 2 | 3 | 4 | 5 | 6 | |
| 7 | The installed base | |||||||||
| 8 | Sold systems installed at the end of FY0 | # | 700 | |||||||
| 9 | Leased systems installed at the end of FY0 | # | 300 | |||||||
| 10 | Systems shipped | # | 120 | 140 | 160 | 180 | 200 | 220 | ||
| 11 | Share of shipments placed under a lease | % | 30.0% | 35.0% | 40.0% | 45.0% | 50.0% | 50.0% | ||
| 12 | Systems retired a year, share of the opening base | % | 4.0% | |||||||
| 13 | Procedures per system a year (utilisation) | # | 190 | 198 | 205 | 212 | 218 | 224 | ||
| 15 | Prices and costs per unit | |||||||||
| 16 | System selling price, FY1 ($m) | $m | 1.80 | |||||||
| 17 | System price change a year | % | -2.0% | |||||||
| 18 | Cost to build a system ($m) | $m | 0.85 | |||||||
| 19 | Instruments and accessories revenue per procedure, FY1 ($) | $ | 1800 | |||||||
| 20 | Revenue per procedure change a year | % | -1.0% | |||||||
| 21 | Cost of instruments and accessories per procedure ($) | $ | 500 | |||||||
| 22 | Service contract per sold system a year ($m) | $m | 0.15 | |||||||
| 23 | Cost of service, share of service revenue | % | 50.0% | |||||||
| 24 | Lease payment per leased system a year, service included ($m) | $m | 0.22 | |||||||
| 25 | Cost of servicing a leased system a year ($m) | $m | 0.05 | |||||||
| 26 | Useful life of a system (years) | # | 7 | |||||||
| 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 (sets the opening working capital) | $m | 640.0 | |||||||
| 34 | Discount rate for a placement decision | % | 9.0% |
Click any cell. The inspector names the line, the schedule it belongs to and what kind of cell it is; blue on cream is an input, black a calculation, green a value from another sheet. Scroll sideways to see every year.
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Medtech installed-base and consumables model: the workbook
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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
- $100.0m
- Lifetime value of a system sold ($m)
- 2.57
- Lifetime value of a system leased ($m)
- 1.25
- Lease payment that would match a sale ($m a year)
- 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 surgical-systems company six years forward: systems shipped and either sold or placed under a lease, the installed base they build, procedures per system, and the instruments, accessories, service and lease payments every installed system pulls through.
Recurring revenue is what medtech investors pay for, so the model reports its share of revenue and the recurring revenue per installed system, and shows what a shift to leasing does: lower revenue and free cash flow, a higher recurring share, and a gross margin that edges up at first and down later as the leased fleet’s depreciation builds.
A Placement sheet takes the decision behind it to one system: its lifetime value sold or leased, the lease payment at which the two are worth the same, and the years a leased system takes to pay back what it cost to build. At these terms a lease is worth less than half a sale, so it pays only where it wins a placement a capital sale would not.
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 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 most 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 ship evenly through the year, so revenue, depreciation and procedures run on the average installed base. Retirements are a share of the opening base.
- A leased system is capitalised at its cost to build and depreciated over its useful life through the cost of lease revenue; it is never a system sale. Lease payments include service.
- Utilisation (procedures per system a year) applies to every installed system, sold or leased. Instruments and accessories are sold per procedure at a price that drifts down a little each year.
- Other capital spending is assumed equal to its depreciation and left out of both, so the leased fleet is the capital story on its own.
- The Placement sheet is a per-system cash view before tax and overheads, at FY1 prices and utilisation held flat over the system’s life. It is a decision aid, not a forecast.
Build it yourself
The starter workbook
The Installed Base sheet has been cleared: the sold and leased fleets rolled from opening through shipments and retirements to closing, the average base, utilisation and procedures. Build it so that revenue, the leased fleet’s depreciation and free cash flow come back to life, and the Checks sheet confirms the base rolls 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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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 inspect: the whole workbook is on this page. A free account chooses one worked model to keep, and downloads every starter workbook. L3VLUP Pro ($25/month) downloads the whole library and opens every model’s formulas in the inspector.
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