Are you considering investing in a new packaging machine for your production line? How can you determine if upgrading your packaging equipment will add actual value to your operation and if you will be able to recoup your investment?
Before moving forward with a major purchase like packaging equipment technology, it’s important to get an accurate estimate of the impacts the new packaging machine will have on your production line. A helpful metric that businesses use to compare options is ROI, and calculating the ROI of a packaging machine will help guide decision-making and purchasing decisions.
What Is Packaging Machine ROI?
Return on investment (ROI) is a metric describing the rate of financial gain or loss of an investment. It’s used across the packaging and processing industry to calculate the profitability of new equipment purchases or other major acquisitions.
ROI is expressed as a percentage. A positive ROI result indicates a positive outcome, while a negative ROI signifies a net loss on the investment.
The Importance of Packaging Machine ROI
When considering investing in new or upgraded packaging equipment, you need to be sure that your investment will be profitable for your operation. By running the numbers and estimating ROI before purchase, you can have a useful starting point for making a purchasing decision.
How to Calculate Packaging Machine ROI
The basic ROI formula is as follows:
[(Revenue Generated – Total Investment Costs) / Total Investment Costs] x 100 = ROI %
However, keep in mind that your ROI calculations are only as accurate as the numbers you input into the equation. Careful, data-driven projections are critically important to calculating ROI accurately and making informed decisions. While estimated ROI is based on assumptions, tracking actual results later—and comparing them with your expected ROI—will help you determine whether your calculations were accurate and if your investment is meeting or exceeding expectations.
With this information in mind, follow these steps to calculate the ROI of a piece of packaging machinery.
Step 1: Estimate Revenue Generated
First, you need to estimate the revenue the new packaging equipment will generate for your operations.
Due to improvements in technology, an upgrade in machinery will likely increase output, so use manufacturers specifications for the model to learn how many units you should be able to package after installing and using the new model. These specifications will likely describe the output as bags per minute (bpm) or cycles per minute (cpm); to calculate the revenue you can expect to generate, simply multiply the bpm or cpm by the number of hours the machine will spend packaging every day and the number of operational days per year and then multiply this estimated number with your sales profit per package.
The result is an estimate of how much revenue you can expect to generate from adding the new machine to your packaging line.
Step 2: Determine Total Investment Costs
The total cost of packaging machine investment includes a variety of costs associated with purchasing the new equipment:
- Equipment purchase “sticker” price
- Taxes and fees
- Commissioning costs
- Shipping costs
- Installation costs
- Training costs
Also included in this number should be the ongoing expenses related to operating the new equipment:
- Labor costs
- Floor space/secondary storage costs
- Annual maintenance and parts expenses
- Energy consumption costs
Any other investment costs related to your operation or industry should be included in this calculation as well.
Step 3: Calculate ROI
Once you have calculated the estimated revenue generated (Step 1) and the total investment costs (Step 2), you can input the numbers into the ROI formula:
[(Revenue Generated – Total Investment Costs) / Total Investment Costs] x 100 = ROI %
The resulting percentage is the estimated ROI of your packaging machine purchase. A positive result indicates your investment contributed to a net financial gain, while a negative result is associated with a net financial loss. Note that ROI changes year after year, and some investments with an initial negative ROI may end up with a positive ROI over a longer time period.
Example Packaging Machine ROI Calculation
Let’s look at an example. Say you are considering purchasing a new packaging machine—an investment that costs $5,000 and should, by your estimates, bring in $9,000 each year. You would calculate ROI as follows:
[($9,000 – $5,000) / $5,000] x 100 = ROI %
The result is an ROI of 80%.
Buy New or Used Packaging Machines at HP Packaging
At High Performance Packaging, we buy and sell used processing and packaging equipment for many different industries. Our high-quality machines have been repaired, refurbished, or reconditioned by the experts on our team, giving old equipment new life and making it ready to contribute to your production line.
As a leader in the processing and packaging machinery industry, we are proud to offer used packaging equipment from a wide variety of manufacturers, types, and styles that meets your sanitation and quality standards. Whether you want to replace a machine on your production floor or expand your current product packaging capabilities, HP Packaging can help you find the best packaging equipment for your business.
View our used packaging products or contact us today to learn more about your packaging equipment options.
