Asset Management ROI: How to Calculate Your Return on Investment
You may have a gut feeling that an asset tracking system could make your job easier and improve your organization's bottom line. But with limited resources and so many options available, it’s critical to make smart purchase decisions. If you don’t properly evaluate ROI, you could end up with a “bright and shiny” solution that doesn’t deliver.
How do you calculate Asset Management ROI?
Luckily, estimating ROI for asset tracking systems is a fairly straightforward process. In addition to estimating your first-year savings, a good ROI calculator will help you to:
- Build stakeholder support
- Uncover additional benefits
- Prioritize when to get started
- Uncover additional benefits
- Prioritize when to get started
The areas where fixed asset tracking software is most likely to save you time and money are:
- Taxes and Insurance
- Asset searches
- Regulatory non-compliance
Before getting started, you’ll need to estimate the total cost of your assets. To do this, simply multiply the number of assets you think you have by the average cost per asset.
Example: Your company has around 1,000 assets (computers, laptops, pieces of equipment and furniture, etc.) with an average cost of about $1,000 each. Multiply these figures to estimate your total fixed asset costs. The result is $1,000,000.
Number of Assets X Avg. Cost Per Asset = Total Cost of Fixed Assets
Now you’re ready to calculate how much you could save in taxes and insurance.
Taxes and Insurance
There’s no way to avoid paying taxes and insurance fees on the assets you own, but there’s no reason to pay for ones that are missing or lost. Assets on your books that can’t be found are often referred to as “ghost assets” because they “haunt” your bottom line. These ghost assets can cost your company tens of thousands of dollars in taxes and insurance.
To estimate how much you might be overpaying, multiply the total cost of your fixed assets by the estimated percentage of ghost assets you have on your books. Fifteen percent is a conservative estimate. This may sound high, but this number can be as high as 20 to 40 percent for organizations with no tracking system in place.
Example: Multiply your total fixed asset costs of $1,000,000 by the ghost asset estimate of 15% to determine the total cost of ghost assets. The result is $150,000.
Total Fixed Asset Cost X Ghost Asset Percentage = Total Cost of Ghost Assets
Because you only pay taxes and insurance on the amount of value left in your assets, you’ll need to perform one more step to determine the current value of your ghost assets. Multiply the total cost of your ghost assets by the remaining value percentage to determine the remaining value of your ghost assets. If you’re not sure, you can use 40 percent for your estimate; the percentage could be higher or lower, depending on how old your assets are.
Example: Multiply your $150,000 in ghost assets by 40%. You discover that the remaining value of your ghost assets is $60,000.
Total Cost of Ghost Assets X Remaining Value of Ghost Assets Percentage = Remaining Value of Ghost Assets
Now that you know the remaining value of your ghost assets, you can calculate how much you’re potentially overpaying on state and federal tax, personal property tax, and insurance. Here are some average rates:
Federal Income Tax = 30%State Income Tax = 6% Personal Property Tax = 3% Insurance = $0.01 Per $1 Example: Multiply the remaining ghost assets value of $60,000 by 30% to calculate how much you're overpaying in federal income tax. The result is $18,000. Do the same for state income tax, personal property tax, and insurance. The results are $3,600, $1,800 and $600, respectively. The total estimated overpayment of taxes and insurance is $24,000.
Looking for equipment and tools during the workday may seem insignificant, but the cost of these searches can add up quickly. According to a WhereNet survey, Sixty-four percent of companies reported that their employees perform at least one search for assets or inventory every day, and 27 percent perform more than 10 searches a day.
Nearly half of the companies in the survey reported their searches take up to one hour. This means that an employee that spends only 10 minutes a day looking for needed items loses the equivalent of a full 40-hour workweek per year.
Example: You have five employees with an average pay rate of $25 per hour and estimate that they each spend 10 minutes per day on asset searches. Multiply the average pay rate by the total time spent on asset searches. The result here is $5,000.
Search Time Spent Per Year X Average Hourly Pay Rate = Payroll Cost Associated with Asset Searches
In addition to time spent on asset searches, the cost of replacing lost or stolen items also affects your bottom line. If your company earns the S&P 500 average after-tax profit margin of 9.55 percent, it needs to generate $9,550 in additional revenue to replace a $1,000 asset. This doesn’t include the additional labor involved with replacing it.
Intangible costs include potential fines for regulatory noncompliance, labor costs to remedy noncompliance issues, lost funding, or negative publicity. Here are some examples:
- Many government, education, and nonprofit organizations are required by law to conduct annual physical inventories.
- Ghost assets can have a substantial effect on regulatory compliance with governing structures like the SEC and HIPAA.
- Ghost assets can throw off the accuracy of calculations related to Sarbanes–Oxley compliance.
The fines imposed for noncompliance can be considerable. When compliance hinges on ghost assets, the cost they represent increases exponentially.
Example: Because you’re not aware of fines for non-compliance, we’ll leave this value blank for now. Even though you may not be aware of noncompliance issues (or able to estimate potential fines), it’s still helpful to be aware of them. And factoring them into your evaluation may help uncover additional benefits you hadn’t thought of.
ROI is a simple yet powerful indicator of the true value of an asset tracking system project and can be used to help gain ongoing support within your organization. Based on the example above, you could save $29,000 or more in the first year by implementing a barcode or RFID-based asset tracking system.
Try our free asset tracking ROI calculator and see if RedBeam Asset Tracking is right for your organization.