There are many business considerations when buying new industrial lifting equipment for your operations. Your company may wish to develop new lines of business, replace equipment that is reaching its end of life, or save money by switching to more efficient equipment. To help understand the financial outcomes of capital cost decisions, you need to calculate the return on your investment. By understanding the savings involved in and the payback time period of your investment you’ll be better informed and able to make a better decision on these capital costs. Calculate your ROI on lifting equipment purchases quickly using the ROI form below.
Purchasing industrial equipment is an important business decision. A key part of that decision is how much benefit (return) the business will realize from the purchase (investment). Many of our clients ask our sales team for assistance with these calculations to help determine the ROI of their purchase. Knowing the ROI will help you make comparisons in equipment purchases. Here are some terms to know:
Return on Investment (ROI): a benchmark used to evaluate the gain on an investment in comparison to the initial amount invested.
Pay Back Period (PBP): an estimate of the time needed for the equipment to pay for itself. This is important to know to help pinpoint when the equipment has paid for itself.
Useful Life: the number of years a piece of equipment can operate.
If the equipment is to support an existing line of business, it can also be helpful to calculate the labour cost savings compared to your current costs. To do this, you will need to calculate the current operating costs against the expected savings when the new equipment is up and running. While not a significant factor most new equipment purchases will see cost savings in electricity, supplies, insurance, floor space savings, and other labour savings such as delivery efficiencies gained.
An Example OF ROI Calculation for Lifting Equipment Purchases
There are many ways of performing ROI calculations dependent on your reporting technique. Here is an example of the calculations we typically use:
A company purchases a $40,000 lifting system that enables them to have one operator moving material instead of two. The shop rate of one employee is $75 per hour. This would yield a $3000/week savings, with a payback period of 3.33 months. Finance managers usually calculate the payback period of capital expenses in years (typically, we see a faster return on investment in lifting equipment so we use months). Once you have calculated the ROI and payback period and factored in the end-of-life disposal of the asset, you will be in a good position to make a final purchasing decision. Here is a case study of a client who made these calculations.
There are other factors to consider that we don’t include in our calculations. For expenses, you can also include the cost of yearly inspections, maintenance, and debt servicing costs. For cost savings, you could also factor in reduced insurance premiums, reduced shipping times, savings from health claims, and increased production.