How to calculate the return on investment of the packaging machine?
When make a packing machine purchase, normally customers would like to know:
It is not easy to answer above questions, but fortunately, the return on investment(ROI) can be used to help you to find ou the answer. ROI calculations are a key part of the vetting process. Therefore, it is necessary to calculate the rate of return on investment in advance.
Firstly, we need to understand what is the return on investment.
Return on investment (ROI) refers to the value that should be returned through investment, that is, the economic return that an enterprise obtains from an investment activity. It covers the profit target of the company.
So before making a investment, you need to ensure that your investment in capital equipment is profitable for your company.
Simple Calculation formula of ROI
Return on investment (ROI)=Annual net benefit or loss generated/total investment×100%.
ROI is often time-sensitive, and returns are usually based on certain specific years.
For example, if you are considering purchasing a packaging system for $10,000 and predict a net annual benefit of $5,000, your return on investment will be:
($5,000 / $10,000) x 100% = 50%
And the payback period formula will calculate how long it will take to recover the initial investment. In terms of packaging equipment, the payback period formula is as follows:
Total cost of new equipment/regular total revenue realized by new equipment.
Using the same example above, the payback period is:
$ 10,000 / $ 5,000 = 2 years.
To calculate the ROI of the new packaging equipment, you need to pay attention to the two important numbers.
1. Calculate the total cost of new packaging equipment
When purchasing automatic packaging equipment, you must consider not only the price tag on the machine, but also other factors. If your equipment cost represents the total cost of ownership and includes the following factors, your ROI calculation will be the most accurate:
These costs vary widely and are difficult to estimate, so we recommend contacting the packaging equipment manufacturer to obtain more information about machine costs specific to your application and business needs.
2. Calculate the net profit/loss of investment in new equipment
To make benefit or loss predictions before purchasing new packing machine, it is necessary to consider the following 3 main factors:
1). Annual labor costs
No. A: calculate the total annual labor cost of all employees working on your current packaging production line. This includes not only the rate of pay, but also welfare costs such as insurance, paid time off and other employee benefits.
No. B: calculate the total labor cost after using the new automatic packaging system. After implementing automation, the number of employees required may change. Usually it will be reduced by half or more.
Once you’ve calculated both numbers, subtract A from B to get the estimated labor gain/loss. Write down this number for later use.
2). Annual gross profit
No. A: you need to calculate how many packages are currently produced each year, and how much the profit of each package is in US dollars (or your local currency). Multiply these together to get the annual gross profit of the packaging activity.
No. B: Next, calculate the gross profit that changes with packaging automation. You can ask the packaging equipment manufacturer to find out how many packages can be produced after implementing automation. Throughput specifications are usually expressed as bpm (packages per minute). Multiplying this number by the hours spent on packaging each day, the number of days per week, and the number of operating weeks per year to get an estimated packages for each year. Then, multiply the estimated number of packages you produce with the new equipment each year by the profit per package.
Now, subtract the number in A from B to get the estimated gross profit/loss. Write down this number for later use.
3). Annual expenses unique to your packing business
A: Current packaging-related costs may include costs such as scrap and rework, as well as the value of the factory space currently occupied by the packaging line.
B. The potential cost of the new packaging system may include engineering or R&D of a customized packaging systems or commissions that may be paid to third-party integrators. This may also include the value of the plant area obtained by consolidating multiple manual packaging areas into a smaller machine footprint.
Now, subtract B from A to get your net gain/loss, then write down that number for later use.
Then, add the three values you obtain, and you will get an annualestimated net net benefit or loss.
Finally, it’s time to use the ROI formula with the value of Annual cost of the new packaging equipment(total investment) and Estimated annual net profit/loss of new packaging equipment.
Return on investment (ROI)=Annual net benefit or loss generated/total investment×100%.
The ROI formula can help you compare these two numbers in a meaningful way, revealing whether the investment in this new packaging system makes financial sense.
How to interpret your ROI results
ROI is an important evaluation index. Through detailed and comprehensive calculations, if your ROI is positive, then your decision to buy a packaging machine will also be profitable.
What if your return on investment turns out to be negative? Usually, this means that there is a net loss during that period. Many investments result in a net loss in the first year, but the situation will improve over time.
Remember, the calculation of the return on investment is related to your data. If your numbers are fuzzy, your return on investment will also be vague. If you don’t want to make major decisions based on incorrect or incomplete numbers, you need to consider potential investment risks and other uncertainties.
How to get a packing machine with good ROI
Customer could consider choose a packaging machine made in China.
After decades of development in China’s machinery industry, the technology in this industry is now very mature. Moreover, many important parts are still selected from world-renowned brands, so the product quality is very stable. Of course, the most important thing is that the cost performance of packing machinery produced in China is currently the highest in the world.
GF machines belong to the first echelon of high quality in China, we focus on the core demands from customer – get high quality packaging machine with limited budgets. There is never the lowest price, but in the high-quality level, G&F’s price definitely is the most competitive, which benefits by cost controlling excellently based on 15 years professional experience, large package machines producing and selling volume.
As a professional supplier of packaging equipment for 15 years, our product range covers economical small packing machines, powerful high-speed standard packaging machines and a complete set of fully automatic packaging line. The packaging products cover various products such as powder, granule, liquid, paste, and so on. GF machines can meet the various packaging requirements of customers.
If you still have questions about calculate the ROI, pls feel free to contact with us, our professional team will help you to make everything clearly!