When a custom automated machine integration costs six to seven figures and takes months or years, the first question becomes less about how to do it and more about the ROI and how the equipment will increase the businesses profitability for years to come. A thorough automation ROI calculation is crucial for justifying this level of capital investment, which often requires long-term expectations, the involvement of owners and CEOs, and, in many cases, business loans.
In this guide, we’ll walk you through the ins and outs of ROI calculation, from the essential elements to the common pitfalls to avoid. We’ll look into the limitations of traditional ROI calculations and explore how to account for the intangible benefits that automation can bring.
By the end of this guide, you’ll have the knowledge and confidence to make informed decisions about your automation investments and maximize their value for your business.
Why Starting with a Quote Is the Wrong Way to Calculate Automation ROI
Simply requesting a quote is a shortcut that misses the mark entirely when it comes to calculating possible robotic automation ROI. While the upfront cost of a custom automation project is certainly a significant factor to consider, it’s just one piece of the puzzle.
A qualified automation integrator needs a deeper understanding of your business goals, production processes, and financial details to provide an accurate assessment of the potential return on investment. Without this crucial context, any initial quote they provide would be little more than an educated guess, and could potentially miss key factors that significantly impact the overall ROI calculation.
Once you’ve partnered with a trusted integrator to guide you through the process, the next crucial step is a comprehensive automation assessment. This assessment ensures you’re tackling the right automation project, maximizing your potential ROI, and not leaving money on the table.
You can use our free eBook, Automate to Elevate: Your Automation Assessment Guide, or collaborate with your integrator to conduct this assessment. This in-depth analysis will provide a clear picture of your automation opportunities, potential cost savings, and the most effective strategies for implementation.
By prioritizing a thorough assessment, you’ll be well-equipped to make informed decisions about your automation journey and achieve the best possible return on your investment.
Top Tip: Before tackling cost estimates, prioritize establishing a Non-Disclosure Agreement (NDA) with your potential integrator. This will ensure confidentiality while you work together to calculate the ROI, a crucial step in determining the feasibility and value of your automation project. A responsible integrator will readily have a mutual NDA prepared in advance.
Related Reading: Choosing the Right Automation Partner for Manufacturing
Elements of an Effective Automation ROI Calculation
An ideal automation ROI calculation should provide a clear and comprehensive understanding of the financial implications of your automation project. Here’s what a well-structured ROI calculation should include:
- Specific Financial Details: A precise reflection of your business’s unique financial situation, taking into account your current production costs, labor expenses, and other relevant factors. This ensures that the ROI calculation is tailored to your specific circumstances.
- Cost Comparison: A detailed comparison of your current production costs with the estimated costs after automation should cover a broad range of factors, including direct labor costs, material scrap reduction, potential for vertical integration growth, and decreased workers’ compensation claims. This analysis can also explore additional metrics relevant to your specific operation.
- Payback Period: A realistic timeframe for when the cost savings achieved through automation will offset the initial investment in the automated system. This helps you understand how long it will take to recoup your investment and start seeing a positive return.
To help you get started, many integrators offer tools like demos, web forms, or downloadable robot ROI calculators. These tools can provide a preliminary estimate of the potential ROI for your automation project based on your estimated budget.
Don’t leave your automation success to chance. Use our robotic process automation ROI calculator to get a clear understanding of your potential return on investment. Better yet, use the reverse function to strategically determine the optimal automation budget that aligns with your desired ROI. This ensures you’re investing in the right components and building machines that will support the long-term growth of your business.
For a more in-depth analysis, consider using our free Automation Assessment questionnaire to get a clearer understanding of whether robotic automation is the right fit for your facility.
Related Reading: Comprehensive Guide to the Industrial Automation Process
Why Automation ROI Isn’t a Business Plan (But It’s Still Essential)
It’s important to understand the distinction between cost justification and a comprehensive business plan. While automation ROI calculations do provide valuable financial insights, including plausible estimates and cost projections, their main role is to:
- Provide insights into your automation options
- Give you a clearer idea of your investment possibilities
- Pinpoint the automation opportunities that are most likely to deliver the fastest ROI.
It’s important to remember that treating ROI calculations like a rigid business plan can be detrimental to your automation project.
Automation ROI Calculation Only Covers Today
Even the most in-depth ROI calculations are a snapshot in time, comparing the potential cost savings of an automated machine today against your current production costs. It answers questions like:
- How much do you currently spend?
- How much more cost-effective will your production become?
- How long will it take for those automation savings to offset the initial investment?
However, ROI can’t predict the future trajectory of your business once you have a more cost-effective production process in place.
Unseen Opportunities for Growth
Factory automation can reveal numerous opportunities that traditional ROI calculations often overlook. These opportunities include:
- Increased Production Capacity: If your new machine can replace multiple manual lines, you’ll suddenly have more space on your production floor. This can be used to expand production, potentially generating significant additional revenue.
- Reduced Labor Costs: By automating tasks that were previously performed manually, you can reduce labor costs associated with recruitment, training, and turnover. This frees up resources that can be reinvested in other areas of your business.
- Improved Sales and Revenue: With increased production capacity and lower costs, you can pursue new sales opportunities, fulfill larger orders, and improve lead times, which can positively impact your bottom line.
The Importance of a Long-Term Vision
These intangible benefits, often invisible to robot ROI calculators, are some of the most valuable aspects of automation. They depend on a broader vision of how you can use automation to grow your business. And unlike a distant ROI payback period, these advantages can often be realized immediately after the automation integration is complete.
By accepting the ROI as a justification for the initial investment and then focusing on exploiting these hidden opportunities, you can learn how to maximize the return on your automation investment.
The Dynamic Nature of Business
Remember, business is not static. Your costs, workforce needs, and technological resources will evolve over time. An obsession with ROI can blind you to these changes, leading to missed opportunities for further optimization and growth.
Instead, treat ROI as a dynamic estimate that accounts for market fluctuations and changes in your financial situation. Flexibility is key to ensuring that your automation investment remains relevant and profitable in the long run.
Many customers kick themselves when they realize the automation integration price tag was a bargain after two years of inflation. Treating ROI as more than an estimate is fiscally irresponsible.
Related Free eBook: The Transformative Impact of Automation for Manufacturers
Focusing on High-Level Factors for Effective Automation ROI Calculation
While there’s nothing inherently wrong with a highly detailed ROI calculation, it’s often not the most efficient or effective approach. Your integrator could spend countless hours analyzing minute details like per-minute power consumption, the cost of disposable gloves, or even cardboard expenses.
However, obsessing over these details can distract you from the bigger picture: identifying the most promising automation opportunities and achieving a realistic ROI.
To streamline the process and ensure a clear focus on the most impactful factors, we recommend a simplified approach to automation ROI calculation:
- Project Estimate: A high-level estimate of the total cost of the automation project, including engineering fees and any other relevant expenses. An experienced integrator can use their expertise to provide a reliable estimate based on factors like desired cycle times, product variety (SKUs), and project timeline.
- Shifts: A simple comparison of the number of shifts required for manual production versus the number of shifts the automated machine will operate. This highlights the potential for increased production capacity and reduced labor costs.
- Employees per Shift: The number of employees needed for each shift in a manual process compared to the number required to oversee the automated machine. In many cases, automation can significantly reduce the number of employees needed per shift, leading to substantial labor cost savings.
- Total Employee Compensation: This includes not only the annual salary of each employee but also the additional costs associated with benefits, insurance, and other related expenses. By factoring in total employee compensation, you can accurately assess the potential for labor cost reduction through automation.
- Significant Cost Savings: Look beyond the obvious expenses like disposable gloves. An experienced integrator can identify additional areas where automation can lead to cost savings, such as reduced rework, scrap, and tooling expenses. These “hidden” automation savings can significantly impact the overall ROI of your automation project.
By focusing on these key high-level factors, you can quickly and efficiently evaluate the potential return on investment for your automation project. This streamlined approach allows you to make informed decisions without getting bogged down in unnecessary details.
Related Reading: 7 Ways Automation Improves Efficiency and Reduces Costs
ROI as a Tool for Strategic Decision-Making
An accurate ROI calculation is essential for justifying the investment in an automation project, and it should be a relatively simple and straightforward process. By avoiding the misconception that ROI is a fixed blueprint or a final invoice amount, you can use the insights gained from professional ROI calculations to explore multiple automation options.
At DEVELOP LLC, we use the information gathered during our comprehensive Automation Assessment to identify and refine the most promising automation opportunities within your production environment. By plotting these opportunities on an ROI scatterplot, we can visualize multiple projects with varying ROI potential and risk levels.
This allows us to present you with a range of options, clearly explaining the cost and timeline implications of each and highlighting which projects offer the greatest potential for mitigating risk and achieving a faster ROI.
Prioritize Solutions, Not Specific Machines
Rather than fixating on a particular machine, adopt a solution-oriented approach. By focusing on finding the best solution to your automation needs, you’ll be better able to choose the most profitable and efficient outcome for your business.
Remember, a faster ROI is often more desirable than simply minimizing upfront costs. We’ve encountered projects with excessively long ROI timelines, and by making strategic adjustments to the initial investment, we’ve been able to dramatically accelerate the payback period, in some cases from ten years down to just two.
Be Aware of Project Risks
Even seemingly simple automation projects require custom engineering to meet your specific production requirements. The more complex the machine, the greater the risk of encountering unforeseen challenges, such as cost overruns, project delays, and scope creep. Choose an integrator who thoroughly assesses the feasibility of your desired automation solution before committing to a specific design.
By understanding the role of ROI as a tool for strategic decision-making, you can manage the complexities of automation projects with confidence and make informed choices that drive your business forward.
Related Reading: Never Automate Without a Single Source Guarantee
Make Informed Decisions with Accurate Automation ROI
When it comes to automation in manufacturing, understanding and accurately calculating ROI is paramount. While ROI serves as a fantastic tool for justifying investment in automation projects, it’s equally important to recognize its limitations. A comprehensive approach to ROI considers not only the immediate financial gains but also the long-term strategic advantages that automation can unlock for your business.
By taking a more holistic view of automation ROI calculation, you can make informed decisions that align with your business goals, drive growth, and ensure a sustainable return on your investment. Whether you’re exploring robotic process automation or considering a complete overhaul of your production line, a well-calculated ROI can guide you toward a more efficient, profitable, and future-ready operation.
Are you ready to transform your production processes and achieve a significant return on your automation investment?
At DEVELOP LLC, we’re committed to helping you tackle the complexities of automation ROI calculation. Our team of experienced engineers and project managers will work closely with you to understand your unique business needs, assess your automation opportunities, and create a tailored solution that maximizes your ROI.
Take the first step to a more efficient and profitable future. Try our user-friendly robotic process automation ROI calculator to get a preliminary estimate of your potential automation savings. Or, if you’re ready for a deeper dive, complete our free Automation Assessment questionnaire to gain valuable insights into your automation readiness.
Want to discuss your specific automation goals? Schedule a free 30-minute consultation with one of our automation experts. We’ll be happy to answer your questions, provide personalized guidance, and help you identify the full potential of automation for your business.
Don’t let uncertainty hold you back. Contact us today and let DEVELOP LLC be your trusted partner on your automation journey.
About the Authors:
Matt Moseman leads as President of DEVELOP, with a strong foundation from the Milwaukee School of Engineering, where he earned both a Bachelor’s and a Master’s in New Product Management. Moseman’s career highlights include his pivotal role in founding NodeUDesign, innovating in automation hardware, and driving DEVELOP LLC to the forefront of industrial robotics with a focus on enhancing productivity and efficiency.
Sean McKittrick, as Project Program Coordinator at DEVELOP LLC, brings a multifaceted background from Knox College. McKittrick’s first year at DEVELOP LLC has been marked by significant team growth and zero turnover, showcasing his ability to build a collaborative and effective work environment. His experience spans quality management in healthcare software to managing production for a million pounds of material monthly, highlighting his diverse expertise in project coordination and manufacturing excellence.