How do you calculate the payback period of a used packaging machine?

Buying a packaging machine is an investment. But will you earn that investment back? And over what period?

The payback period is an important factor when comparing new and used packaging machines. By weighing the investment against the annual savings and additional revenue, you gain insight into how quickly a machine pays for itself.

With a used packaging machine, the investment is often lower than with a new machine. As a result, the payback period can be shorter, while the machine can still be used for many years. But to make a good comparison, you need to look beyond the purchase price alone.

In this blog, we explain how to calculate the payback period and which factors you can take into account.

What is the payback period?

The payback period is the time needed to recover an investment through the annual savings and additional revenue that the machine generates.

The basic formula is:

Payback period = total investment / annual net savings or revenue

Suppose a used packaging machine costs €60,000 and generates €30,000 in net savings per year. The payback period is then:

€60,000 / €30,000 = 2 years

In this example, the original investment is recovered after about two years.

To arrive at a realistic calculation, you need to include both the full investment and all relevant annual costs and revenues.

How to calculate the payback period

Step 1: Determine the total investment

The investment consists of more than just the purchase price of the used packaging machine.

Consider, for example:

• Purchase price of the machine
• Transport and installation
• Modifications to the packaging line
• Upgrades or additional peripheral equipment
• Modifications to the infeed and outfeed
• Any overhaul or technical work
• Staff training

With a used machine, it is important to determine in advance which work is needed before the machine can be put into production.

For example, a machine that seems inexpensive at first glance can still turn into a considerable investment if many modifications are needed. Conversely, a lightly used machine that is ready for immediate use can be financially attractive, even if the purchase price is slightly higher.

Step 2: Calculate the annual savings and revenue

Next, you calculate what the packaging machine generates or saves each year.

Labour savings

A packaging machine can ensure that the same production is achieved with fewer labour hours or employees.

A simple calculation is:

Labour costs per package = number of employees × hourly wage ÷ number of packages per hour

Then compare the current situation with the situation after the investment.

Higher speed

A new or used packaging machine may have a higher capacity than your current machine.

However, a higher speed only generates additional turnover if that extra capacity can actually be utilised. If the production volume remains the same, a higher speed may mainly result in labour savings, for example.

Therefore, do not just look at the maximum capacity of a machine, but above all at the capacity you actually need in practice.

Material consumption

The material consumption per package also affects the payback period.

A machine that doses, cuts or seals more accurately can reduce material waste. A saving of a few cents per package may seem small, but with hundreds of thousands of packages per year it can add up to a considerable amount.

Revenue per package

A different packaging machine can also make a higher revenue per package possible. Think, for example, of packaging that better meets the requirements of a customer.

So calculate not only which costs the machine saves, but also which additional revenue is possible.

Quality and reliability

Not all benefits can be expressed directly in euros. A machine can, for example, result in:

• fewer rejects;
• less product loss;
• fewer returns;
• better packaging quality;
• fewer breakdowns;
• less production downtime.

If you can reasonably estimate these benefits, you can include them in the calculation.

These are offset by the annual costs of the machine, such as maintenance, repairs, wear parts and energy consumption.

Step 3: Calculate the payback period

Once you have determined the total investment and the annual net savings or revenue, you can calculate the payback period.

Payback period = total investment ÷ annual net savings

It is useful to make this calculation in a spreadsheet. Put the current situation and the various alternatives side by side and compare, for example:

This way you see not only what a machine costs, but also what it delivers in practice.

It can also be useful to calculate different scenarios, for example at 300,000, 500,000 and 750,000 packages per year. This shows you how the payback period changes when the production volume turns out higher or lower.

Example: a used packaging machine

Suppose a company purchases a used weighing and packaging line.

The total investment amounts to €60,000, including transport, installation and necessary modifications.

The annual financial benefits are:

• Added value of packaging: 500,000 × €0.05 = €25,000
• Labour savings: 0.5 FTE × €40,000 = €20,000
• Material savings: less film waste = €4,000
• Additional maintenance costs:- €3,000

The net annual savings and revenue therefore amount to:

€25,000 + €20,000 + €4,000 - €3,000 = €46,000 per year

The payback period is:

€60,000 / €46,000 = 1.3 years

In this simplified example, the investment is therefore recovered in about 1.3 years.

In a real calculation, more factors can of course be included, such as energy consumption, financing costs, production loss during downtime and changes in production volume.

Why can a used machine be interesting?

The purchase price has a direct influence on the payback period. If a used machine can perform the same or similar work as a new machine but costs less, less investment is needed to achieve the same savings.

This applies particularly to lightly used packaging machines. These machines have been in use before, but can still be a good match for the desired production, both technically and in terms of capabilities.

Suppose a new packaging machine costs €100,000 and a comparable lightly used machine €60,000. If both machines deliver the same annual savings of, say, €30,000, there is a clear difference in payback period:

New machine: €100,000 / €30,000 = 3.3 years

Lightly used machine: €60,000 / €30,000 = 2 years

In this example, the investment in the lightly used machine is therefore recovered sooner.

The purchase price is not the only point of attention. Also look at the technical condition, age, maintenance history, availability of parts and the options for modifying the machine.

Also consider future packaging requirements

A packaging machine can be used for many years. During that period, customer requirements may change.

Think, for example, of a different weight per package, a different type of tray, flow pack or top seal, a different film or additional labelling.

It is therefore wise not to look only at the current packaging when making a purchase. Also investigate which other packaging formats and specifications the machine can handle.

Moreover, a packaging line often consists of several machines. As a result, a change in packaging does not always mean that the complete line has to be replaced. Sometimes, for example, only a packaging machine or labelling machine needs to be modified or replaced.

The flexibility of a machine can therefore be an important part of the investment.

Don't forget the residual value

The payback period tells you how quickly the investment is recovered. But even after that, a packaging machine can still have financial value.

Many used packaging machines retain a certain residual value after years of use. How high it is depends on factors such as the brand and model, the technical condition, the options, the maintenance and how widely the machine can be used.

A machine from a well-known international brand with common options and in good condition can, for example, remain interesting for a next owner. A highly specified custom-built machine, on the other hand, can be more difficult to redeploy.

The residual value can therefore be taken into account when you compare different investment options.

Want to know more about the residual value of a machine? We will soon publish a separate blog explaining which factors determine the residual value of a used machine.

Look beyond the payback period

The payback period is a useful way to assess an investment in a packaging machine. But it is not the only factor.

A machine that pays for itself quickly can then be used for many more years. That is why it is wise to also look at the expected service life, maintenance costs, flexibility and residual value.

When comparing used packaging machines, you can therefore ask yourself the following questions:

• What is the total investment?
• What annual savings and additional revenue does the machine deliver?
• What capacity is actually needed?
• What are the expected maintenance and energy costs?
• How flexible is the machine for future packaging?
• How long is the machine expected to remain in use?
• What residual value does the machine have?

By taking these factors into account, you get a more complete picture of the investment.

A used or lightly used packaging machine can thus be a way to invest in automation and capacity without immediately having to invest the amount of a new machine.

Looking for a used packaging machine?

At Duijndam Machines you will find used packaging machines and machines for complete packaging lines. Depending on the product, the packaging and the desired capacity, various solutions are possible.

Can't find the right machine straight away? Then please contact us. We are happy to help you find a suitable used packaging machine for your application.