CALCULATE YOUR ROI

Learn how M2M can transform your business

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.

Truly Positive Results

While the industry is still relatively young in terms of adoption, it appears that many businesses are already experiencing positive returns from implementing M2M systems. In a 2014 survey conducted by Vodafone regarding M2M adoption, 66 percent of companies reported having a positive Return on Investment (ROI) within one year of implementation; 89 percent had a positive ROI within two years. In spite of the fact that M2M is producing tangible ROI, business managers remain either unaware or unconvinced of the potential impact an M2M solution could make in their operations and profitability.

89% of companies experienced a positive ROI on their M2M deployment within two years

On the surface, the promise of M2M is alluring:
efficiently monitoring remote assets while collecting data to optimize your operations and increase your profitability.

However, as you begin to examine the possibilities for your company, it may not be so evident to find a return for your specific business or industry.

If you find yourself not understanding how to go about this, or how to think about the ways M2M would impact your business, you are certainly not alone. Business leaders that that are resisting the adoption of M2M frequently cite ROI-related issues like understanding how this will improve their business or impact their profitability as some of the major barriers. Many fleet management solutions provide ROI calculators through their websites to understand the impact of their specific products. But what if you want to implement your own enterprise level or white-labeled solution?

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

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:

  1. Decreasing your costs of doing business
  2. 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.

Efficiencies and Cost Savings

Once the cost is understood, you need to figure out how much money the technology is saving you, where that savings is taking place, and how much more profitable those efficiencies are making your business.

In order to determine cost savings, you should consider some of the basic inefficiencies you may experience in your business processes or activities:

How much time to perform a given activity Reducing the amount of time employees spend traveling, diagnosing problems and performing repair
Cost of employees performing an activity Allowing workers to reduce time wasted decreases the dollars lost in salary
Resources consumed Decreasing fuel costs, reducing wear and tear on vehicles, reallocating assets more efficiently
Amount preventable of breakage and downtime typically experienced Increasing uptime of machinery with predictive maintenance and faster error detection and repair, leading to longer machine lifespan
Manual monitoring or intervention required in a process M2M requires less human intervention, can redistribute personnel elsewhere, saving hours and salary costs
Data-based decisions Becoming proactive versus reactive, by learning from data analysis to make better decisions
How much asset loss or the do you experience Reduce the dollar amount of loss and decrease insurance costs

Note that you will benefit from both preventing dollars from going out the door unnecessarily, as well as reducing the amount spent on preventable expenditures.

Revenue Generating

Aside from the variety of ways M2M can save a company money, the cost-savings component of ROI can often be secondary to the impacts ROI can have on revenues and differentiating factors for your business.

Your business can also benefit from other returns such as improving customer satisfaction, brand differentiation, and the collection of accurate data – all of which can contribute to increased revenue.

Implementing an M2M system can augment your revenues in a number of ways:

New Products/Services Provide a product or service you were previously not capable of offering. Understand how much others in the industry are charging for it – if none of your competitors o er the service, you can charge premium pricing
Premium Product Improve your current product o ering with value-added services in order to charge a premium
Productize Data Gain valuable insights from the data you collect, and then package and sell it
Differentiation In crowded markets, differentiate yourself from your competitors in order to improve customer satisfaction and increase retention
Productivity By decreasing the time your staff spends in support and managing problems, you can increase the amount of time they spend generating revenue
Cash Flow Improve your cash flow with faster invoicing and highly accurate billing information

This page is not intended to be a comprehensive list of the ways that M2M can create efficiencies in your industry or generate additional revenue for your company. There are diverse methods that companies are finding to demonstrate ROI with M2M, in almost any industry. The actual benefits you recognize will likely incorporate some combination of the two – both generating additional revenue and also creating cost savings through efficiencies.

Download this page as a PDF document

CLICK HERE

JOIN THE INGENU NEWSLETTER