ROI, or Return on Investment, sounds like a daunting calculation, but it actually isn’t hard to figure out when you’re looking at buying a piece of equipment for your business, such as an ultrasonic cleaner. Also known as the “payback period,” ROI simply expresses when you’ll earn more money from the purchase of a piece of equipment than it cost you to buy it in the first place.
What is ROI?
ROI is often expressed in a period of time, such as weeks, months or years. Normally, a payback period of one to three years is considered acceptable and a good investment, as this would leave two additional years of expected useful life for most pieces of equipment. However, depending on the piece of equipment, this period could be longer. Ask the manufacturer for more information.
Calculating Labor Savings
Consider this: how long would it take for what I want done to be done via regular labor? How much would it cost me to pay those workers to do that job? And, most importantly, could they do the job, anyway?
Other savings and benefits are certainly worth looking at, but the dollar amount saved will be bigger in comparison to actual labor savings possible from the use of more productive equipment. Good management will always care more about dollars saved over labor saved.
To calculate the hours saved per day, week, month or year, you’ll need to figure out the hours your employees now spend performing the tasks at hand and separately do the same for the estimated hours that would be spent doing the same tasks with the equipment you plan to purchase.
Keep it simple: calculate the total hours saved each day and multiply the hours saved by the number of days worked per month — the average is 21 — to come up with the total hours saved each month. Then, multiply the number of hours saved each month by 12 — the number of months per year — to get an annual number of hours saved.
The savings in hours or minutes per day is the difference between the hours you are spending now per day doing the work versus the number of hours you would spend doing the work at the production rate of the machine that you plan to purchase.
Once you have an estimate of the value of the labor you’re now using and the cost of the labor you would be using with a new piece of equipment, the difference between the two numbers is the cost savings you can expect.
Other increased or decreased costs you need to calculate into the final figure are machine purchase price, repairs, chemicals and any other costs that would be incurred as a result of the change to the new machine.
Other Savings which Affect ROI
New chemical technology, such as Omegasonics’ line of detergents, could bring up to a 30 to 100 percent reduction in chemical costs, depending on the previous application.
Technology Equals Productivity And Reduced Costs
Technology advances so rapidly that even though a piece of equipment may not have reached the end of its useful life, you may want to go ahead and upgrade to a new model that provides additional benefits and is more productive and cost effective. Choose a good vendor with whom you would like to work for a long time and cultivate that relationship. It will pay off in dividends, such as significant price discounts, when it comes time to upgrade.
Keep in mind that most pieces of ultrasonic equipment will last much longer than three to five years. However, the older the piece of equipment, the higher the expected maintenance cost to keep it running efficiently, so you’ll need to also make that part of your ROI calculations. If you do a good job with your calculations, you’ll likely find that it’s easy to justify the purchase of a piece of equipment like an ultrasonic cleaner, which can save money and labor costs for business now and for years to come.