Calculate ROI of Conveyor Equipment

Excel Conveyors manufacturer conveyors for small business owners to large corporations. While large corporates have their teams and departments for calculating ROI - return on investments, small business owners are often confused about the term Return on Investment.

Why is the word Return on investment so important?

When you are running a business, your cash flow is defined. You bring the raw material, convert it into finished goods, sell them, get the money, and pay back supplier payments and salary. But when you purchase an asset or capital equipment, that much of funds from your cash flow are locked and moved out of daily working capital, affecting your capacity.

In simple layman terms, ROI is how you are going to recover your investment. There is no single ROI accounting formula that will directly give you the ROI of the equipment. Every business is different, and every business owner has their own mindset to run and analyze their business. A small business owner has to make a simple accounting of what changes before and after the purchase of conveyor equipment. One has to analyze how the conveyor is going to add value to his or her life. When you understand this, the picture becomes much clearer for your ROI analysis.

How do you make the decision to buy conveyors or capital equipment for your factory automation?

• Will it be the right decision?
• What will be the cost?
• How to justify this cost financially?
• Will it be the right decision in terms of finance?
• What if the decision goes wrong?

It is important to understand how to calculate the ROI of conveyor equipment. The ROI - Return on Investment helps you make the right decisions about buying. The payback period tells you how much time it will take to recover the investment.

Let's take an example

If you are looking for a packing conveyor to sort raw material, you may find a direct reduction in manpower, increased sorting and grading quantity, and improved sorting quality. For this, maintain records such as how much time is required to sort a defined quantity, how many supporting labor are needed, the quality of sorting, and how often the packing team has complaints about the sorting team.

Above is the actual scenario. You also have to mark the proposed new scenario: number of labor required, increased sorting speed, and increased packing speed. The difference in this amount is your actual saving — it is your profit after purchasing the conveyor.

This process will also help you generate the requirements and specifications for the conveyor.

When you evaluate deeply, you will understand whether a powered conveyor is required or a gravity roller conveyor will work. What will be the length of the conveyor needed? You may need variable speed for the conveyor if trial and error is required. These specifications will help your RFQ process become faster and more accurate. The conveyor manufacturer can add more value when complete information is received.

Factors for calculating ROI of your Conveyor Equipment

1) Cost of the conveyor

• The cost paid to the supplier
• Transport cost
• Installation & commissioning cost
• Training cost

The buyer should inform all possible information to the conveyor equipment supplier. Buyers should try to identify hidden costs such as variant or changeover parts, electrical costs, etc. If you plan expansions soon, evaluate whether the same equipment can fit the future budget.

2) Labour Cost

Is there any workforce reduction due to this conveyor equipment purchase? Consider labor cost including:

• A) Direct wages
• B) Indirect expenses such as canteen, insurance, PF, etc.

3) Direct Benefits to production

What are the direct benefits to manufacturing activity due to the installation of conveyors?

• Labour productivity increases due to ergonomic working.
• Higher speeds increase sales and profits.

4) Maintenance Cost of Conveyors

• What is the maintenance cost of conveyor equipment?
• Do I need separate manpower for it?
• Is it maintenance free?
• What is the preventive maintenance cost per year?

5) Bank interest

Bank interest on the funds invested.

ROI = Benefits / Investment

ROI - return on investment is simply profit / investment. The higher the result, the higher the ROI. Higher ROI means faster recovery of the investment.

Steps to calculate ROI:

Find out your current cost without purchasing the conveyor equipment - C1.

Find out the costs after purchasing the conveyor equipment - C2.

ROI = (C1 - C2) / C2 = Profit / Investment

Payback Period

Payback period = C2 / (C1 - C2)

(Investment / profit)

Download here the calculator for ROI

Intangible benefits

Intangible benefits cannot be measured but affect overall performance or help increase brand image.

Labor Supervision Cost

Assume labor reduces from 20 to 10 by purchasing conveyor equipment. The supervisor can use the extra time for higher priority work.

Product Damage cost & Brand Image

If damaged products are received by customers, brand image suffers. Conveyor equipment reduces product handling damage and maintains product quality, increasing customer loyalty and brand reputation.

Are you planning to buy a conveyor? Call us now to get the benefit of our expertise in this field.

Want to learn more about the benefits of conveyor systems click here.