Measuring ROI of Janitorial Equipment
Buying equipment is no small matter for a building service contractor (BSC). Big-ticket items like scrubbers and extractors can cost hundreds and even thousands of dollars. With an investment of that magnitude, it's important to choose wisely.
When evaluating equipment, it's wise to balance these four factors:
- Initial cost: Compare price tags across manufacturers to make sure the item you're considering is in line with averages. But remember, price and cost are not the same thing. Other benefits should factor into your decision as well (tech features, longer lifespan, sustainability, etc.)
- Productivity: Evaluate a machine's effectiveness and efficiency—how well and how quickly does the machine perform? Cheaper isn't better if the machine doesn't produce labor savings.
- Lifespan: Most machines have a useable life of 3 to 5 years. This number can go much higher with a quality maintenance program. Ask your distributor or the manufacturers for the average lifespan of the equipment you're considering.
- Operating cost: How much will this particular machine cost (or save) when it comes to things like water and energy consumption? Also, does the machine save on labor and operating costs by extending the time between treatments (ie, between stripping and refinishing)?
In a labor-intensive industry where man hours make up 55 to 85 percent of a BSC's budget, productivity is paramount. Smart equipment purchases make your team more efficient and effective, and can even allow you to reduce or redeploy labor hours.
The best choice isn't the machine with the lowest price tag, but the one that delivers the best payback period and return on investment (ROI).
Know Your Numbers
Before you can calculate the payback period and ROI of any equipment, you need to know the specifics about the area you're cleaning.
Every BSC should know the exact square footage of the facilities they clean. You can get this measurement from a blueprint or by physically marking it off with a laser tape measure. You may even be able to count out floor tiles and multiply the length and width.
You also need to understand the density of every space. Are you cleaning wide open areas (ballrooms and corridors) or spaces with lots of obstructions (offices and patient rooms). There's a big difference in how you maintain 10,000 square feet of empty space versus 10,000 square feet of cubicles. Knowing the cleanable square footage helps you determine cleaning times.
After figuring out the size of the spaces you clean, you need to calculate your production rates. How long does it take to clean the spaces with the equipment you currently use? You can do this yourself (see next paragraph), you can find industry averages in ISSA's 612 Cleaning Times, or you can use a software program from a manufacturer or industry association.
To calculate rates yourself, measure a representative area or clean the entire area and have a worker clean at a normal pace. Use this exercise to determine the average time it takes your crew to clean 1,000 square feet.
Calculating Payback Period
An important metric to understand is “payback period.” This is the length of time it will take to recoup the investment in a piece of equipment (via productivity gains/labor savings). The lower the number, the better. This calculation is simple. Divide the initial price of the equipment by the labor savings.
When it comes to equipment production rates, you will need to determine your current equipment production rate and the new equipment production rate. Equipment manufacturers and distributors will have ‘estimated times” for the equipment they sell, but a better estimate of the “actual time” can be figured at a rate of 65 percent of the recommended production time.
As an example, let's look at a backpack vacuum with a 12-inch carpet tool vs. a traditional 12-inch upright.
The average cleaning time for the upright is 26.8 mins. per 1,000 SF (or 2,239 SF/hr.) and for the backpack it's 8.25 mins. per 1,000 SF (or 7,273 SF/hr.). If you use one vacuum to clean 10,000 SF/wk., it would take 4.46 hours with an upright or 1.37 hours with a backpack. The backpack would save 3.09 hours/week or 161 hours/year. If your average custodial hourly wage is $15, then that backpack saves you over $2,415/year.
To determine the payback period, divide $2,415 (annual savings) by 12, which equals $201. Now divide $400 (the initial cost of the vacuum) by $201 to get the payback period of 1.99 months.
In this scenario, the vacuum goes from costing you to saving you money after just 2 months.
Calculating ROI
Once you recoup your initial investment (payback period), any additional labor savings are the ROI or how much you save by investing in a piece of equipment. The higher the number, the better. To determine ROI, you compare how long it takes to perform a task from start to finish with your current equipment vs. the product you're considering purchasing.
Start by subtracting the labor hours required for the new machine from the labor hours required for your current equipment. This is your labor hours saved; extrapolate that number out a year. Now, use this formula: Multiply annual labor savings by the equipment's lifespan. Then subtract the initial cost of the equipment as well as maintenance costs (annual costs x lifespan).
In the case of our backpack vacuum vs. the upright, to determine ROI we multiply $2415 (annual labor savings) by 5 (lifespan in years) to get $12,075. Then subtract $400 (initial cost of backpack) and $195 (figuring 15 minutes of cleaning/maintenance per service x 52 weeks = 13 hrs/yr x $15/hr. wages = $195) for a total ROI of just over $11,460.
In this scenario, every upright vacuum you replace with a backpack will save you $11,460.
If all of this math seems overwhelming, don't worry. You can download our free ROI Calculator here and simplify the process.
Using the Data
Fully assessing ROI and payback periods may reveal that a machine with a big price tag will actually pay for itself sooner than expected. Those savings, however, are only fully realized if you maximize the resulting labor gains.
Unfortunately, this is where many BSCs fall short. Too often, BSCs buy more productive equipment but fail to make any labor adjustments. In a world of shrinking budgets and increased competition, you simply can't afford to make that mistake.
If a new backpack vacuum cuts labor by 4 hours a month, for example, you should reallocate (or reduce) staffing accordingly. That represents one hour each week that could be used to do detail work that there previously wasn't time to tackle.
Taking the time to calculate payback period and ROI can clearly illustrate the potential savings of a new piece of equipment. These simple calculations can be the difference between buying blindly and making an informed decision about the equipment you use.
Copyright The Janitorial Store. All Rights Reserved
Visit our Store for Certification Training Programs
