One of the most important skills a business owner can have is to be able to estimate he cost of an asset. Whether that asset is labor or equipment, there is an initial and recurring cost that is associated with it.
Being able to accurately determine what asset is going to cost you the least while providing you with the most benefit can be the difference between a successful business and bankruptcy court. So which is the better investment: equipment or labor? Let’s look at the recurring costs of both to see where a business may save the most.
Knowing the initial cost of equipment is easy; the price tag is right on the unit. A business pays the price for the unit, has it installed and it is ready to go. These are all very quantifiable and knowable costs.
Labor also has an initial startup cost. The hiring process will take time from existing employees or a fee paid to a head hunting firm. Once the employee is hired, there may be drug screenings or background checks that are done. Finally, once the employee is brought on board, a training period will be needed to get the labor up to speed on the job responsibilities.
So, comparing the two: A business owner can look to see how much the equipment is and pay that amount or not based upon the availability of funds. Labor startup costs can be somewhat more variable depending on the labor pool and candidates who interview. While labor startup is usually much less than equipment, it can be just as costly in some situations.
Cost of Labor
Labor demands a salary. Depending on the position and the hours, there may also be the cost of benefits such as healthcare or 401k plans. As time goes on, these costs are going to naturally increase as good, experienced employees are going to demand more pay for the work done. There is also the cost of downtime. Employees will need time off and vacation benefits.
Again, capital equipment is going to have fixed costs of maintenance and power to make the unit work. There may be repair costs and associated down time with breakages, but they should be few and far between if the equipment is reliable.
A comparison of the two will again show a pretty heavy uncertainty on the labor. If recent trends continue, the costs of healthcare alone are going to be unpredictable and rise sharply. Wages, unemployment insurance, taxes and workplace insurance are all associated costs with labor that do not really have an equivalent when talking about equipment.
While labor is necessary for any business to succeed, businesses should take the time to consider whether to expand using equipment or labor. In many cases, the cost analysis is going to show that investing in good solid equipment, like the ultrasonic cleaners provided by Omegasonics, is going to be much less costly in the long run.
In the end, it simply comes down to a simple question: Can machinery do the work, or do you need a human touch? While having a machine do a human job may seem cheaper initially, it can become very costly down the road. I think you have this sentence backwards. The labor is cheaper up front but over time is more expensive than a machine. Look at the Tesla factory. Robots build those cars in California of all places.