Return on Investment, or ROI, is the ratio of profit over total investment. Many people use it to evaluate stocks, financial markets, capital equipment, etc. It is a quantitative way in determining the validity of an investment or project. Recently, there has been a big push by power companies for energy efficiency within the manufacturing sectors. EXAIR, in partnership with Energy Star, has been manufacturing safe and efficient products since 1983. An ROI will give a measurable value to communicate more thoroughly with your financial decision-makers.
Equation 1: ROI = (Total annual savings – Total Project Cost) / Project Cost * 100
In an earlier blog, I wrote about a project with a company in calculating compressed air savings; “EXAIR Super Air Nozzles: 38 Day ROI Saves Money”. In this blog, I determined the total compressed air savings and the payback period by switching to EXAIR Super Air Nozzles. The payback period is the amount of time it will take for the project to pay for itself; and for the above manufacturer, it was calculated at 38 days. To associate this to a Return on Investment, I will use that information from the blog to calculate the ROI. Equation 1 shows that for any positive ROI value means that the payback period is less than one year. The larger the ROI value, the quicker the investment that you made will start earning money for your company.
The first part of the equation, Total Annual Savings, is calculated by amount of compressed air savings when using EXAIR Super Air Nozzles in a blow-off application. When this customer switched from copper tubes, which uses an excessive amount of compressed air, to the model 1110SS Super Air Nozzles, the compressed air consumption dropped by 80%. Compressed air is considered a fourth utility in manufacturing plants because the amount of electricity to make compressed air is very large. At a rate of $0.08/KWh, each Super Air Nozzle saved this company $306.00 per year. As described in the blog, the facility used four nozzles per machine, and they had 25 machines in their facility. The total annual savings is calculated as follows:
Equation 2: Total Annual Savings = $306 * 4 * 25 = $30,600 per year.
The second part of the equation, Total Project Cost, is the cost of the nozzles plus the labor to install them onto the machines. The model 1110SS Super Air Nozzle has a price of $46.00 each. These engineered nozzles are designed to use less compressed air by entraining the “free” ambient air, making them very efficient for blow-off applications. The amount of time required to install four nozzles to each machine was 1 hour. This time included tapping, fixturing, and testing each setup. The labor rate that I will use in this example is $75.00 per hour (you can modify this to your current labor rate). The labor cost to install four nozzles is $75.00 per machine. The Total Project Cost can be calculated as follows:
Equation 3: Total Project Cost = ($46 * 100 nozzles) + ($75 * 25 machines) = $6,475
With the Total Annual Cost and the Project Cost known, we can insert these values into Equation 1 to calculate the ROI:
ROI = (Total annual savings – Total Project Cost) / Project Cost * 100
ROI = ($30,600 – $6,475)/$6,475 * 100
ROI = 373%
When a decision maker sees this large of a value for a Return on Investment, it makes it very easy to proceed with an energy-saving project to install EXAIR Super Air Nozzles on their machines.
Besides cost savings, there are some additional things that EXAIR products can provide. It may be difficult to put a value on the savings, but these products can improve your process and save your company money. First, they can reduce repair or replacement costs on maintenance items for the air compressors. If you use less compressed air, then the running hours of the compressor is reduced. Second, some things that can be easily overlooked is safety. The Intelligent Compressed Air® products have a much lower sound level where expensive PPEs may not be required. Another safety feature is dead-end pressure in which the operator could risk health in using open pipe or substandard nozzles. Some other enhancements in using EXAIR products are improved system reliability, increased productivity, and reduced unscheduled downtimes (typically seen with broken plastic nozzles). These added benefits plus the short ROI can validate a energy-savings project in your facility.
Power companies see the great value in using efficient engineered products in compressed air systems as they currently offer rebates. If you need help to see if your local power company does offer rebates, EXAIR can research the programs for you. The rebates will reduce the cost of each nozzle as well as cut the overall project cost. EXAIR also offers an Efficiency Lab. We will compare your current blowing device with an EXAIR product to find any compressed air savings. It is simple to do. Just fill out the form, Efficiency Lab, and ship your product to us. We will test each product with calibrated equipment and report the results. The comprehensive report will include compressed air savings which can be used for the ROI calculations above. For the company above, they were able to save $30,600 a year with a ROI at 373%. If you would like to team up with EXAIR to establish annual savings, project improvements, and rebates, you can contact an Application Engineer to get started. We will be happy to work with you.
John Ball
Application Engineer
Email: johnball@exair.com
Twitter: @EXAIR_jb