Understanding ROI for New Technology in Your Dental Lab
Calculating the return on investment is one of the most important things you can do to enhance your business performance. The ROI shows laboratory owners the financial return they can expect to receive from investing a certain amount of money and resources. Calculating the ROI makes it easy for lab owners to decide whether or not they should invest in new technology for their lab.
When it comes to calculating ROI for new technology in your dental lab, the equation is quite simple:
(Income – Cost of System – Cost of Production)/ Initial Investment = ROI
- Income – Labs need to consider where this will be coming from - will it be new business? Will it be existing customers switching to new products? How soon will it arrive? What is your marketing budget to promote new products?
- Cost of Technology – How fast will you pay off the investment? Considering the cost of lease vs. purchase, licensing fees, building adaptions & IT/tech support.
- Cost of Production – understanding your labor, material and remake costs, employee training, indirect labor impact and any maintenance/ service contracts
XYZ Lab invests $20,000 in a system to produce flexible partials. They produce 750 units in the following 36 months (3-years). The amount of new business sold totaled $93,750.
($93,750 - $20,000 - $56,250)/ $20,000 = $17,500
Over 3 years their ROI = 29% per year
In addition, to effectively maximize ROI on technology investments, it’s imperative to factor in good data. Labs should know unit production volumes, revenues/sales by product and production costs. Also, don’t forget to measure the key business indicators, like the number of units per technician per day and the revenue per technician. These key performance indicators will help you focus on improvement.