A Step-by-Step Guide to Using an Equipment ROI Calculator for Your Business

Think about why you purchased the automatic packaging machine?

Maybe you want to improve the quality of product packaging and enhance production efficiency. Or you want to save costs and improve product competitiveness.

Yet, it is a profitable venture for purchasing an automatic pouch packaging machine.

How do you make sure the packaging equipment would bring you profit in the long run?

It’s crucial to have a clear understanding of the potential return on investment (ROI).

That’s where an equipment ROI calculator comes in handy!

In this blog post, we’ll provide you with a step-by-step guide on how to use an equipment ROI calculator for your business.

Whether you’re thinking about purchasing an automatic pouch packaging machine, or any other equipment for that matter.

This guide will teach you how to calculate the financial value of an investment and make an informed decision.

What is the equipment return on investment calculator?

There is a simple formula to show how the return on investment of the packing machine is calculated.

According to Enterprise financial expert Andrew Beattie, from the University of Alberta.

Return on investment (ROI)= (Net Profit / Total cost of machine investment) x 100%

In the real business case, the formula is written as:

ROI = [(Revenues – Total cost of machine investment) / Total cost of machine investment] x 100%

For instance, if a new pouch packaging machine costs you $2000.

And, it would bring you $3000 Revenues in one year.

The investing a new packing machine’s ROI analysis will be:

($3000-$2000 / &2000) X 100% = 50%. Your ROI is 50% in this investment.

Positive vs. Negative ROI

Investment is a risky business activity.

When the ROI in a business project is positive, it can be considered profitable.

If the project’s ROI is negative, It means that the benefit of this project is less than the cost.

If the ROI number is 0, it means the offset between the income and cost of the investment.

Expected vs. Actual ROI

In the real case of a business, the data of ROI need to be compared in order to see the pros and cons of the investment plan.

Expected ROI is often used to determine whether the investment in a new packing machine is profitable. 

As using the estimated revenues, costs, and other hypothetical conditions to calculate profits, the Expected ROI is uncertain.

In general, the calculated values are different in different scenarios. 

The changes here can help us understand the risks of the investment plan and decide whether to implement it or not.

Actual ROI is the true ROI generated from a Packaging machine that has been put into production.

Benefits of Using an Equipment ROI Calculator

Calculating the return on investment for new equipment purchases can be a challenging task, especially for small business owners who don’t have a lot of financial expertise.

Accurate Estimates

By taking into account all the relevant factors, such as the cost of the equipment, operating costs, and expected lifespan, an equipment ROI calculator can give you a realistic estimate of the return on investment for a given purchase.

This helps you make more informed decisions and avoid costly mistakes.

Time-Saving

Using an equipment ROI calculator can save you time by automating the calculation process.

This means you can focus on other aspects of your business while the calculator does the heavy lifting.

Comparison

By inputting the data for multiple investments, you can see how they stack up against each other in terms of expected return on investment.

This can help you make more informed and strategic decisions about where to allocate your resources.

How equipment ROI calculator works when purchasing a new packing machine

With the above knowledge reserve, you will be able to estimate the ROI of the new pouch packaging machine. 

Now we use the data of the one-year production cycle for statistical analysis.

Calculate Total expenses of packing machine

The purchase cost of packing machine:

Machine cost

Shipping cost

Taxes and fees

Training expenses for operating staff

Maintenance cost of packing machine

In general, these are necessary costs of investing in the new packaging machines.

Our engineer’s team will provide you with in-depth guidance to avoid detours.

Labor cost

The labor cost is not to be underestimated in the automatic packaging equipment long-term production plan.

This includes the worker’s salary, the worker’s insurance, etc.

With intelligence and automation, The new packaging equipment can significantly reduce labor costs.

For instance, the existing packaging machine needs 3 workers. Each worker’s salary is $10000 per year.

So the total labor cost will be $10000*3=$30000.

For the new packing machine, maybe 1 human labor could complete the same production task.

After calculation, the enterprises can reduce the annual labor cost is $20,000.

The annualnecessary cost of carrying out normal production tasks

This expenditure is incurred by the packaging machine in the production activities.

It may include the packaging raw materials, packaging consumables, electricity charges. 

Sometimes, additional costs should be accounted for, such as overhead and taxes.

It is worth noting that, as a result of the technical iteration, the new packaging equipment indicators are better.

The lower defective rate of finished packaging.

The new equipment avoids the unnecessary waste of raw materials and packaging consumables.

The higher packaging efficiency.

The packaging machine completes more finished bags in unit time.

Based on the above analysis, you can calculate the expected cost of investment in a new packing machine. And the actual cost comes out in the same way.

Calculate the profit of the project

The obvious change brought about by the new packaging equipment is the increase in product output.

Calculate the actual profit of current packaging equipment

You can analyze the annual production and sales of the current packing machine.

Then, you will know the total profit and total output of the packing equipment. 

After that, You can go one step further and get the profit for each pack.

Calculate the expected profit of investing in a new automatic packaging machine

Due to the optimization of packaging technology, the output is bound to be increased. 

Our machine experts would help you check the capacity of the new packing equipment.

Taking our new product 6 weighers pyramid tea bag packing machine as an example, it can easily complete more than 3000 bags of tea bags per hour.

But the old-style triangular packing machine, The capacity barely reached 1800 bags per hour.

Combined with the above known single product profit, the expected product profit can be estimated.

How to build an roi calculator to evaluate your project

With the above data, you can run the formula to calculate the expected ROI for investing in new packaging machines and the actual ROI for existing packaging machines.

By comparing your mental expectations, you will have a clear idea of the investment.

But when you run the ROI calculation, you get much more than that.

Understand the risks

There are many factors that affect the expense and income of investing in a new packing machine.

Find them out.

The relevant statistics have possible outcomes under different preset conditions.

Assuming here, our drip coffee packing machine can complete 10,000 finished drip coffee bags a day.

The profit of each pack is $ 0.2. And the cost of production is $3,000.

ROI= (0.2 * 10,000)/3000 * 100% = 66.7%.

But raw material prices have risen sharply this year. Under the same amount, The profit of a single pack fell to $0.18. And the cost of production now rises to $4,000.

ROI=( 0.18 * 10,000)/4,000 * 100% = 45%.

By understanding these risks, you can decide whether your investment should move forward.

Investment payback period

For packaging equipment, the upfront investment is often a high cost.

The payback period of the packing machine is also an important indicator for you.

It refers to the time in which the equipment pays itself by the profits it generates.

The formula is packing equipment cost / annual profit.

Take our tea packaging machine as an example, suppose a new tea packing machine costs $3,000.

And its net annual profit is $6000.

By running this calculation, $3000 / $6000  = 0.5 years.

You can see the investment payback time is a half year. 

It means that six months after the machine was put into production, it became a cash cow.

Summary

After reading our article, you can find out whether it is profitable to invest in new packaging equipment.

You can even calculate the ROI on several new packaging machines at the same time.

And then choose the packing machine with the most profitable.

At Xhteapck, our engineers and sales staff will offer you a helping hand and serve you at all times.

At last, Think about how much you’ll lose if you don’t invest in a new packaging equipment