How to Evaluate the ROI of a Robotic Cell
Automating a process can represent a significant investment for a manufacturing company. Before moving forward with a robotic cell, one question almost always comes up:
How long will it take to recover the investment?
Calculating the return on investment (ROI) of a robotics project may seem simple: compare the cost of the cell with the labor savings it generates. In reality, that only tells part of the story.
To properly evaluate the profitability of an automation or robotics project, you need to consider all costs, as well as all direct and indirect gains generated by the solution.
Productivity, additional capacity, scrap reduction, employee turnover, labor shortages, and new orders can all significantly change the financial picture of a project.
Here is how to perform a more accurate analysis.
What Is the ROI of a Robotics Project?
Return on investment measures the financial benefits generated by a robotic cell compared with the amount invested.
A first analysis usually consists of comparing the initial investment with the annual savings generated.
For example, if a robotic cell represents an investment of $300,000 and generates $150,000 in net annual savings, the simple payback period would be approximately two years.
This first estimate is useful for quickly qualifying an automation opportunity. But it is not enough to make an investment decision.
1. Start by Establishing the True Cost of the Project
A common mistake is to consider only the price of the robot.
In a robotic cell, the robot is only one part of the overall system.
Depending on the application, the investment may include:
- the industrial or collaborative robot;
- the gripper or tooling;
- peripheral equipment;
- conveyors;
- vision systems;
- safety devices;
- positioners;
- programming;
- engineering;
- mechanical and electrical integration;
- installation and commissioning;
- operator training;
- modifications required to existing equipment.
Recurring costs should also be considered, including preventive maintenance, wear parts, and possible tooling changes.
The objective is to establish the total cost of ownership of the robotic cell, not simply its purchase price.
2. Calculate the True Cost of Labor… and Employee Turnover
Labor savings are usually the first benefit considered in an ROI calculation.
But an employee’s hourly wage does not represent the true labor cost to the company.
You should also consider:
- wages;
- employee benefits;
- insurance and employer contributions;
- vacation;
- overtime;
- training;
- recruitment.
Another factor is often overlooked: employee turnover.
Some manufacturing positions are difficult to keep staffed because the work is highly repetitive, physically demanding, not very rewarding, or simply difficult to perform for eight hours straight.
When an employee leaves this type of position, the company has to start the process again: recruit a new person, onboard them, train them, and wait until they reach normal productivity levels.
All of this has a cost.
If the same position has to be filled repeatedly, it becomes important to look beyond the annual salary.
A high turnover rate can be a sign that a position or task is problematic.
The question is no longer simply:
“How much does this employee cost?”
You should also ask:
“How much does it cost us to constantly recruit and train someone to perform this task?”
Automation can help stabilize the operation while allowing employees to be reassigned to more interesting, higher-value tasks.
There is also another benefit that is much harder to include in an ROI formula: employee satisfaction.
An employee who no longer has to perform the same monotonous, repetitive task all day can be reassigned to more varied responsibilities such as quality control, preparation, programming, robotic cell supervision, continuous improvement, or other operations.
This improvement in the employee experience is not always easy to quantify in dollars.
However, it remains an important factor when evaluating the overall value of a robotics project.
3. Don’t Calculate Only the Jobs Replaced
This is probably one of the biggest mistakes in the analysis of a robotics project.
The reasoning should not simply be:
“How many employees can this robot replace?”
It should instead be:
“How much additional value can this robotic cell create?”
In many projects, the objective is not to reduce headcount.
A company may automate simply because it cannot recruit enough workers to reach its production capacity.
It may also want to move an employee from a repetitive task to another operation where that person’s skills create more value.
The gain therefore comes from the additional capacity generated and from better use of the available workforce.
4. Measure Productivity Gains
Let’s assume a manual operation produces 40 parts per hour and a robotic cell can produce 60.
The gain is not just labor savings.
The robotic cell now provides 50% more production capacity on that operation.
If the company has enough demand to use this added capacity, the increase can generate significant additional revenue and profit margins.
You should therefore analyze:
- the number of parts produced before automation;
- the number of parts that can be produced after automation;
- cycle time;
- the number of production hours available;
- actual demand;
- the margin generated by the additional production.
For some companies, this capacity gain is worth far more than the direct labor savings.
5. Calculate the Value of the Orders You Are Currently Turning Down
This is one of the most frequently overlooked gains.
A manufacturer may lack labor or capacity and be forced to:
- turn down orders;
- limit sales;
- subcontract part of its production;
- add overtime.
In this situation, the true cost of insufficient capacity is much greater than the salary of an unfilled position.
A robotic cell that allows the company to recover this capacity can generate new revenue that simply did not exist before.
To estimate this, review the volume of orders that were turned down or subcontracted over the last 12 months and calculate the margin that could have been generated with sufficient production capacity.
This recovered capacity should be included in the profitability analysis.
Which Indicators Should Be Tracked When Evaluating a Robotics Project?
A good analysis should go beyond a simple payback period.
The main indicators to consider include:
Payback Period
The number of years required to recover the initial investment.
ROI
The financial return generated compared with the capital invested.
Total Cost of Ownership (TCO)
The initial investment plus operating, maintenance, and service costs over the life of the system.
Cost per Part
Allows you to directly compare current production with automated production.
Production Capacity
The number of additional parts or units that can be produced through automation.
Overall Equipment Effectiveness (OEE)
Measures equipment availability, performance, and quality.
Robotic Cell Utilization Rate
An underused robotic cell will naturally be more difficult to justify financially. The number of shifts and actual production hours therefore have a significant impact on ROI.
Position Turnover Rate
A position with high turnover may generate recurring recruitment, training, and productivity-loss costs that should be included in the analysis.
What Is a Good ROI for a Robotic Cell?
There is no universal answer.
An acceptable payback period depends on the company’s strategy, financial capacity, project risk, and the importance of the problem automation is expected to solve.
In many automation projects, companies still aim for a relatively fast return on investment.
However, a project with a longer payback period may still be strategic if it solves a major issue related to capacity, labor, quality, or production stability.
ROI should therefore be viewed as a decision-making tool, not the only decision-making criterion.
Get a First Estimate With Revtech’s ROI Calculator
To make this first analysis easier, Revtech developed an ROI calculator for robotics projects.
This first estimate helps determine whether an application deserves a more detailed analysis.
→ Calculate the potential ROI of your robotics project with our online calculator.
Before Making a Decision: Also Consider Financial Assistance and the Cost of Doing Nothing
Once the operational ROI has been established, two final elements can help support the decision.
The first is financial assistance programs.
Depending on available programs and the company’s eligibility, certain expenses related to automation, robotics, or productivity improvement may qualify for financial support.
It can therefore be useful to compare two scenarios:
ROI without financial assistance and ROI with potential financial assistance.
A grant can shorten the payback period, but it should never turn a bad project into a good one. Automation should first and foremost solve a real operational problem.
The second consideration is even more important:
What is the cost of doing nothing?
When a company is analyzing a robotic cell worth several hundred thousand dollars, it is natural to focus on the amount of the investment.
But maintaining the current situation also has a cost.
Over the next three to five years:
- How much will employee turnover cost?
- How much will you spend on recruitment and training?
- How much will overtime cost?
- How many orders will you have to turn down?
- How much production will be lost?
- How much will scrap and rework cost?
- What will be the impact of wage increases?
- What happens if your competitors improve their productivity faster than you do?
Individually, some of these costs may seem modest.
Added together over several years, they can completely change the financial analysis.
In some cases, the financial risk of maintaining the status quo becomes greater than the risk of investing in automation.
At Revtech Systems, the objective is therefore not simply to determine whether a robot can perform a task.
We focus on answering a much more important question:
Will automating this operation create enough value to justify the investment?
That is where a true robotics project should begin.