Maybe you are a purchasing manager, CEO, or company owner who wants to invest in packaging equipment to start a new project.  

To save labor costs or improve production efficiency, you could expand your business faster than your competitor to occupy more market share.

No matter what are your reasons for this investment. Suppose you have any experience with a successful project. It’s easy to understand why it’s so important to calculate ROI before you start any investing. Buying packaging equipment is a must process as a rational long-term investor!

How to calculate a packaging machine’s cost?

If you think a machine cost is a total amount you pay to get a machine. That is not enough. Investing in packaging machines is long-term.

• Obvious cost

These costs include machine and raw material costs, delivery costs, taxes and fees, and training expenses for your machine operator. No doubt, direct costs are so obvious and can be easily calculated.

• Hidden cost

However, 95% of customers overlook the hidden cost, especially new investors. It includes all potential costs during the period of your usage of the equipment, including

• Labor cost: 

How many workers will you need to handle the packing machine per day, and what’ll it cost for one year?

• Maintenance cost : 

You may need to hire/invite an engineer to repair the new machines. What will be the after-sales service cost?

• Wearing parts cost: 

When a machine keeps running daily, replacing some worn parts in time is inevitable, and those costs should count into your budget.

• Loss due to machine failure/downtime:

A reliable supplier can provide stable and reassuring machines that could significantly save your cost in this area, which is often the most overlooked cost for investors when evaluating suppliers in the first place.

• Costs due to plant shutdowns, personnel shutdowns, and production schedule delays

• Machine cost of depreciation

• Marketing cost and electric charge etc.

Add the obvious and hidden costs above to evaluate your overall expenditure on the machine. This cost calculation can help you paint half of your business picture. You should also assess the “ROI” to fully understand the return value you receive from the overhead cost.

What contributes to “ROI” on a packaging machine

In a real business case? Here is a formula that can help you better understand ROI ( return on investment)

ROI = [(overall revenues overall cost on a machine ) / overall cost on your machine] x 100%, to increase your ROI, you can increase your overall revenue and reduce your cost or do them both. Otherwise, your business will not be successful in the long term.

Here sharing an example to illustrate the process of calculating ROI on a packaging machine purchase: Let’s say you are deciding a purchase a coffee bean packing machine system with a total cost of $100,000. And your forecast that the investment could return $200,000 in the first year.

According to the above formula, the return on investment value is: ($200,000 – $100,000) / $100,000 x 100% = 200% to calculate my ROI on the packaging machine

How to analyze the “ROI”

Investing in a new packaging machine; one noticeable change will be your production output. You can analyze the annual production and revenue from the packaging machine. By forecasting the overall outcome to know the total profit.

Control risks during pack back period, the up-front investment in packaging equipment is relatively high, and the return period will generally need half to one year or even longer. During this period, many factors could affect the cost and income from your new packaging machines, such as the cost of floating raw materials, exchange rates, etc.

Figure out all these uncontrollable factors and predicting and assuming possible outcomes under different conditions can help you better manage the potential risks and rationally assess whether you should continue your investment.

Also, think about how much you’ll lose if you don’t invest in the machine. Contact Packwaytechno to get a more detailed suggestion.

Is it a worthwhile investment or not?

After calculating all expenses and income, get the ROI. You may still wonder how to make the final decision. Ask yourself a few questions:

1. What’s the ROI number for the first year?

Check if the new equipment brings in a net gain or loss in your first year. Generally, you can evaluate if it is a good choice or not and if it will bring a net benefit within a year.

If your ROI result is negative, your investment may lead to losses in the short term. Then, you need to carefully consider whether to continue this new equipment or replace it with another piece of equipment with better ROI.

2. What is the ROI in the future in 3-5 years?

Your machine ROI number can tell you the future profit, too. It changes from time to time, don’t make big decisions based on incomplete numbers. Just looking at the first year’s return on investment may get you a short-sighted plan. You can predict a few more years because the machine is not a short-term investment. If the return on investment in the next 3-5 years still has a considerable net income, you could start action now!

Taking your next step

Are you trying to purchase a machine now and still have no idea and feel the current information you have is not enough to decide what packing machine to choose to maximize your profits? The below additional actions might better help you find the right solution.

1. Talk to our experienced engineers

Discuss your business plans and the purpose of purchasing the packaging machine, share your idea of your sale plan and thorough understanding of your business and budget and forecast sales. Let them help you assess your ROI.

2. Contact some of our current clients who have similar experience

Packway has a large number of related packaging projects experience like yours, some of our customers may be doing the same or similar business like yours, and their experience may help you better evaluate the return on investment, contact us to get a reference.