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Calculating the return on investment (ROI) of an asset tracking solution is essential for all businesses, large and small. Having an accurate picture of where your tangible assets are at all times offers valuable benefits in terms of cost savings, compliance, and efficiency. Mismanaging your assets or operating under outdated information can severely affect anyone’s bottom line.
Asset tracking systems are inherently designed to maximize your return on investment. By staying in the know about your asset whereabouts, statistics, and history, you can take action to minimize unnecessary expenses. To highlight the importance of calculating the ROI for asset tracking solutions you need to first know best practices around tracking, find the appropriate method for showing prolonged business value, and understand the potential of the system at scale.
Asset Tracking ROI Milestones
There are many different methods for calculating ROI, but the most important pillar of asset tracking is to use a method that is tailored to your specific business needs. After determining the right method to report your asset tracking successes and opportunities with, the next step is to pinpoint a the investment milestones in your tracking journey. There are a number of factors to consider when calculating ROI for asset tracking, including:
- The cost of the asset tracking system itself
- The cost of installation and training
- The cost of maintaining the system
- The value of the assets being tracked.
- The frequency and accuracy of asset tracking.
- The impact of asset tracking on operational efficiency.
A Common Asset Headache
Example: If one of your employees has spent 30 minutes in search of a set of assets to complete a core requirement of their job, you should consider the value instant knowledge of that asset's position and condition would bring to your business. Not only did you lose out on that employee's potential efficiency, but you paid them for a task best suited for technology in the modern era.
Using the milestones above, think about the ROI of an integrated asset tracking solution in this scenario. If the employee was appropriately trained on the use of asset tracking solutions, they can now immediately know where to find the assets they need or even schedule their use in advance. When the asset is being used by another employee of the same position can help determine if you need more of this asset to reduce efficiency bottlenecks for your operation. The condition or maintenance schedule for the asset can determine if the asset can even be used or if it is time for replacement. Finally, when your business needs to flip or sell the asset, you have a proper list of asset history to determine its value for sale.
Formulas to Calculate Your ROI
Once you have considered all of these factors, you can begin to calculate the ROI of your asset tracking system. To get started, you will need to gather data on the cost of the system and the value of the current and fixed assets being tracked. You can then use this information to calculate the ROI using RedBeam's built in ROI Calculator, or find a solid example from our list below.
1. The Payback Period Method
This method simply looks at the amount of time it will take to recoup the costs of implementing an asset tracking system. To calculate the payback period, you will need to divide the total cost of the system by the savings generated each month. The payback period is typically expressed in months.
Example: If the total cost of an asset tracking system is $10,000 and it generates monthly savings of $1,500, the payback period would be 6.67 months.
2. The Net Present Value Method
The net present value (NPV) method takes into account the time value of money when calculating ROI. This method discounts the future savings generated by an asset tracking system back to present day dollars. To calculate NPV, you will need to use a discount rate and the project’s cash flows.
Example: If the total cost of an asset tracking system is $10,000 and it generates monthly savings of $1,500 over a period of 36 months, the NPV would be $27,608.
3. The Internal Rate of Return Method
The internal rate of return (IRR) method is similar to the NPV method, but it does not require the use of a discount rate. This method discounts the cash flows associated with an asset tracking system back to present day dollars and then calculates the rate of return.
Example: If the total cost of an asset tracking system is $10,000 and it generates monthly savings of $1,500 over a period of 36 months, the IRR would be 24.33%.
4. The Benefit-Cost Ratio Method
The benefit-cost ratio (BCR) method simply looks at the benefits of an asset tracking system versus the costs. To calculate the BCR, you will need to divide the benefits of the system by the costs.
Example: If the total cost of an asset tracking system is $10,000 and it generates monthly savings of $1,500, the BCR would be 1.5.
Once you have calculated the ROI of your asset tracking system using one of the methods above, you can begin to make decisions about whether or not the system is a good investment for your business. If you find that the ROI is positive, then it is likely that the asset tracking system will be a good investment.
The ROI Bottom Line
The benefits of asset tracking are clear and the ROI can be easily calculated. By understanding the value of each piece of equipment, your business can make informed decisions about where to allocate its resources. Implementing an asset tracking system is a wise investment for any company looking to improve its operational efficiency and budget forecast accuracy.
The bottom line is that the return on investment for asset tracking can be very beneficial for businesses of all sizes. Not only will you have a better understanding of your company’s assets and their whereabouts, but you can also save money in the long run by reducing losses related to downtime of employees, equipment, or lack of inventory accountability. If you’re still not sure if asset tracking is right for your business, contact us today to schedule a free consultation. We would be happy to discuss your specific needs and help you calculate the ROI on our asset tracking solutions.
