Return on an M2M Investment
Machine-to-Machine (M2M) technology is on the precipice of becoming the most transformative new technology impacting the way businesses operate since the advent of the Internet.
Companies from almost every industry are beginning to improve their processes and provide superior products by utilizing M2M services. Advances in technology are bringing M2M to the masses and enabling large enterprise-level users to begin to circumvent middlemen and develop their own customized solutions.
What if you want to implement your own enterprise level or white-labeled solution?
Like any good business owner or manager, you need to have the ability to cut through the flashy potential of a new technology to understand the impact on your bottom line. Let’s illustrate some general ways to approach M2M ROI that will provide a framework for you to solve the question.
Calculating ROI for a new technology can be expressed as simply dividing the profit from a new investment by the amount of invested capital needed to acquire it.
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
The investment in our case will be the implementation of an M2M solution; the cost will be the cost of this solution – which can be calculated easily enough. The gain however can be measured in one of two ways:
- Decreasing your costs of doing business
- Generating additional revenue
When it comes to understanding where to look to calculate the impact on these two levers, it helps to consider whether the solution you implement will have an internal or external focus.
Cost savings will largely be those initiatives that are internally focused – meaning that they touch on your processes and infrastructure, working to make them operate more e iciently and e ectively. These will be visible on your financial statements, potentially a ecting both your COGS (cost of goods sold) before gross income, and your SGA (selling, general and administrative) costs a er gross income. However they will also become visible through metrics that are not as easily measured such as time saved, loss prevented or increasing the useful life of an asset.
Conversely, revenue-generating items are externally focused – they are a built into products and services and therefore generally touch the user or customer. Understanding the di erence will help you determine what you need to measure in order to track and calculate your ROI. While this may be visible in the accretion of top line revenue from new business in your financial statements, it may show up in other places such as increased customer satisfaction and retention or increased sell-through to existing customers.
Let’s dive a little deeper into the components of ROI: Cost of investment, decreasing your operating costs and increasing revenue.
Cost of Investment
Calculating your cost of deployment can be a challenging task depending on how much of the process you want to own and how much you will utilize partnerships for deployment. Assuming you will be using established partners and enablement platforms, you should be able to get a good estimate for your cost by mapping out some variables:
|Breadth of Deployment||The number of modules you will deploy. This will determine the number of devices you will need to deploy, and the cost of managing and monitoring your devices.|
|Geographic Area||How much coverage area you want to service. Will you be deployed in a single manufacturing location, the interstate movement of assets, or international commerce?|
|Complexity of Application||What data you will measure. Is it just simple location data, or will you be gathering more complex information like speed, braking patterns, fuel levels, etc. This will factor into the amount of data you will need to transmit, store and analyze.|
Whether or not you choose to implement an enablement platform will determine what operating costs you will have to absorb and what will be included in their services, such as:
- Monitoring platform
- Engineering and development
- Customer support services
- IT backbone (hosting & servers)
- Personnel costs to manage that cost – 2-3 people
- Billing support (if relevant)
- White labeling and customization (if relevant)
There are many online calculators available to estimate these costs, or you can work with a partner organization or vendor to get more accurate pricing.