It is good to invest in an automatic packaging machine to promote your business. But how do you predict the profit or risk of this investment? This article will let you know how to calculate the ROI of an investment in an automatic packaging machine and make it clear.
If you are considering purchasing a packaging machine, cost savings can be important. Your business will receive additional benefits beyond other considerations. Try to base your factors on the following:
Check the total cost of the machine investment
- Learn how to save labor costs in the production process.
- productivity improvement
- Annual Expenses of Packaging Business
- The time frame for recovering the costs expended.
- The above factors are the focus of the most experienced investors. Especially before buying a new machine. Also, judging from customer feedback on the Jochamp machine. Investing in an automatic packaging machine is always profitable.
You may be wondering if this is worth it in the long run. Before buying an automated machine, it is necessary to have a full understanding. Calculating ROI is your best bet.
Here’s a simple formula to illustrate how to do it.
Note that ROI refers to return on investment. It is the profit you get from the capital invested in the business.
Return on investment (ROI) = net profit generated by new machine / total cost of machine investment x 100%
This formula provides a fundamental analysis of your business investments.
For example, if you invest $40,000 in a new packaging machine. You intend to make $50,000 a year in net income from the packer. Your ROI analysis will be:
$50,000 / 40,000 x 100 = 125%
In this case, your ROI is 125%.
Although all stages of production may not require automation. Human-intensive and repetitive operations need to be automated.
Before purchasing an automatic packaging machine, it is crucial to understand the ROI. said Tim, a marketing expert from Harvard Business School. Knowing the ROI of any business project you plan to invest in will help you. It will let you know if the project is worth executing.
Using the calculations above, estimate your ROI. Once you can demonstrate a return on your investment, getting ahead will be an easy match.
You might want to count other things that might have an impact on your decision. In conclusion, note that the most important of these is the entire ROI analysis. It usually includes capital expenditures and your expected net profit/loss.
We have simplified the process of calculating ROI. This is for ease of analysis before you buy a packaging machine.
- 1 1. How to calculate ROI of automatic packaging machine?
- 2 2. Annual gross profit margin
- 3 3. Annual Expenses of Packaging Business
- 4 4. How to Calculate the Payback Period of Your Investment
- 5 5. How to analyze your ROI results
1. How to calculate ROI of automatic packaging machine?
1) Calculate the total cost of the machine investment
Computing packaging costs with a machine is different. You must include the following:
- The cost of the machine
- Training fees
- Transportation cost
- Import tax
- Repair fees
In conclusion, we have an in-depth guide explaining in detail what it takes. At the same time, our packaging machine experts can provide accurate cost details.
2) Calculate the net profit generated by the new machine:
- Differences in labor costs
The factors that determine ROI are:
- Your current labor cost in the packaging process without machines.
- Labor cost estimates for automated packaging solutions.
Below is a closer look at these differences. The difference between these two numbers can inform your investment in a packaging machine.
Current labor costs without machines
First, you need to calculate the average labor cost of the packaging process without the machine. This includes wages, workers’ insurance, paid vacation (if any). Include other costs of retaining employees.
Cost of packaging process using automatic packaging machine
Although the initial cost of automated machines is capital intensive. It has minimal requirements to run compared to manual manual processes. This needs to be done repeatedly by many people. Automated machines will require less manpower.
For example, the manual packaging process requires 4 labors, and the average labor cost is $19,000/person/year, then the total labor cost of the packaging process is 4*$19,000=$76,000
Whereas in an automatic packaging solution, you only need 1-2 workers to operate the machine. Suppose we need two workers to operate this machine.
To get your labor cost variance, subtract $38,000 from your current labor cost of $76,000.
So A – B = $38,000
Your labor cost difference is $38,000.
However, the situation can be the other way around, sometimes a packaging solution may require some workers to operate, but whether it’s profit or total expense, watch the numbers.
2. Annual gross profit margin
To get the annual gross profit, first, pay attention to the number of packs you are currently producing and the profit per pack. In the absence of a packaging machine, check the annual profit generated during the packaging process.
Next, check the capacity of the new automated packaging solution. Please feel free to contact a Jochamp machine specialist for a consultation. Typically, a single-line packaging solution has a capacity of around 1200 – 4200 bags per hour, while a multi-line packaging machine can have twice the capacity or more.
Based on the estimated capacity of the automatic packaging solution and the profit per package of the product, you can easily calculate the annual gross profit with the automatic solution.
Annual gross margin = dc
3. Annual Expenses of Packaging Business
This also comes in two forms
- The cost paid by your company includes production loss rate and renovation cost. Including losses due to substandard packaging or substandard weight, we also need to consider what it takes to run an existing packaging line without a machine.
This requires the expense you incur when using an automatic packaging machine.
It includes the cost of integrating and running your new packaging machine. Subtract the cost of F from E.
E – F = annual packaging expenses
Investment income calculation and analysis
Assume that your company’s packaging business has an annual gross profit of $50,000 after deducting labor cost variances and the cost of a new packaging machine is $40,000. This is the stage where the ROI formula is applied.
The ROI is 125%: $50,000 / $40,000 X 100.
That’s not all there is to ROI calculations. You may be wondering about the time frame for your ROI, or whether investing in a new packaging machine is worth it in the long run.
4. How to Calculate the Payback Period of Your Investment
The payback period is the time frame within which the packaging machine should pay for itself. With any investment, getting your money back is a reasonable expectation. The equipment cost return formula for any business is known to be:
New Machine Cost/Total Cyclical Profit from New Machine
For example, if a new machine costs $40,000
Its annual net profit is $50,000
Payback time is:
$40,000 / $50,000 = 0.8 years
In this case, your blood pressure is 0.8 years.
5. How to analyze your ROI results
Use the formula above when calculating your ROI and interpreting your results. Take note of the following points to let you know if it is profitable.
After ROI calculation and checking the current state of your business. Is it profitable to buy this machine?
Beware of the profit-maximizing machine
Will this new machine be profitable? Also, if you don’t automate packaging, what do you have to lose?
At Jochamp Machinery, contact our experts who can help answer further questions if you need clarity. Whether it’s on a new packaging machine or improving your current packaging methods.