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Asset tracking ROI, or return on investment, refers to the business process for determining the value offered by assets in relation to the costs of buying and maintaining them.
Ideally, a business will invest a set amount of funds into buying assets, and then use those assets to earn much more than the assets cost, gaining a strong ROI on those assets in the process. These assets can include anything the company owns, from hardware like laptops or forklifts to paperwork like licenses. Any company with assets should track their ROI consistently in order to make informed business decisions.
Asset tracking costs should account for time as well as money, but calculating ROI is just one of the many reasons it’s crucial for most businesses. In this article, we’ll discuss the best ways to monitor and improve your asset ROI.
What Is Return on Investment?
Return on Investment (ROI) is a financial term that refers to the profit gained or lost from an investment. It’s a useful metric for business owners or managers that anticipate making future investments as their company grows: The investments with the highest ROI will make the most sense to focus on.
ROI is typically measured as a percentage, and might be measured on a monthly, quarterly, or annually basis.
The formula for ROI calculation is the net profit or loss divided by the total cost of the investment, which can then be multiplied by 100 to convert it into a percentage.
What Is Asset Tracking ROI?
Your asset ROI refers to the revenue that an asset can earn your operation in relationship to the total cost of that asset.
If a toaster costs you $50 to buy and you sell $10 worth of toast after a month, than your ROI on that particular asset was ($10/$50)×100, which is 20%.
This only tells you the ROI of your asset itself: To get the full picture, you’ll need to factor in the cost of bread, electricity, and depreciation thanks to all those crumbs in your new toaster. However, by tracking your asset ROI, you have a better idea of how long it will take to pay off your asset: With a 20% monthly ROI, your asset will have earned back its cost in five months.
Types of Asset Tracking ROI Metrics
When tracking the ROI of their assets, most operations can handle both digital assets and physical assets including ghost assets. Here’s what to know about each.
Physical asset management ROI
The bulk of your asset tracking concerns surrounding ROI will likely be physical assets. These might be fixed assets such as printers, scanners, and desks, but it also includes moveable assets, from laptops to heavy equipment and vehicles.
You’ll need to conduct a regular inventory audit that includes all physical assets. To determine ROI, you’ll need to log two key metrics: Location and condition. The location confirms that you have not misplaced the asset, and the condition allows you to determine the depreciation of the asset.
Ghost asset management ROI
A “ghost asset” is the term for an asset that a business has lost or misplaced, but that appears in their tracking system as a functional asset. If you don’t account for ghost assets, you’ll overestimate your total asset ROI.
The amount of lost or unusable assets owned by a business might range from 5% to 30% of all assets owned. Whatever the percentage, you’ll need to factor it into your ROI calculations as a potential loss of revenue: You already invested in these assets – including ongoing costs like taxes and insurance – but you aren’t earning a return.
Digital asset management ROI
Most asset tracking systems will include a feature for logging digital assets. This might include software or hardware licenses, property deeds, insurance, reports, or other paperwork. Tracking these digital assets helps to ensure that you renew them when needed. However, they don’t physically move around or degrade over time, which makes them easier to track than physical assets.
Unquantifiable metrics
Finally, you’ll need to remember one of the most difficult metrics to understand: The unmeasurable benefits of functioning assets and a functioning asset tracking system. This might include improved brand awareness and consistency, legal and regulatory asset compliance, and better customer satisfaction, all of which can contribute to a sturdier bottom line.
To gain an understanding of these areas, you can try to casually chat with other teams within your company (such as sales, marketing, or accounting) to gauge their understanding of how well the company is doing, and if its asset management could be improved.
How to Measure and Calculate Asset Tracking ROI
Ultimately, the data analysis needed for an ROI report should be handled by a professional. If you’re a manager hoping to gain a basic understanding of the process, however, we can help. As we already mentioned, the basic formula for calculating any ROI is:
(net profit/investment cost)×100 = ROI
This can be modified for physical assets:
(profit generated by one asset/initial asset cost)×number of assets×100 = Total asset ROI
You’ll need to factor in your estimated number of ghost assets as well, leading to a formula that looks more like this:
((profit generated by one asset/initial asset cost)×number of assets) – estimated profits of all ghost assets)×100 = Total asset ROI
However, this formula should be expanded on in order to capture the ongoing costs of asset maintenance. The “profit generated by one asset” should be the net profit, minus all extra costs. These costs might include the cost of work hours of maintenance, replaced parts, taxes and insurance, among other factors.
How to Improve Asset Tracking ROI
You can boost the ROI offered by your assets by focusing on reducing maintenance costs. Establishing a preventative maintenance plan is one of the best ways to do this: By addressing potential issues before they become problems, you’ll lengthen your asset lifecycle.
Getting the right asset tracking software is a big step towards improving asset tracking ROI, since it will monitor the location and condition of your assets. Depending on your needs, you may want certain type of software: we’ve written guides to the best fixed asset tracking software and the best free asset tracking software options, based on our research.
A good software can also speed up an inventory audit, which can improve your asset ROI by exposing ghost assets and maintenance needs you would otherwise miss.
Finally, you’ll want to include a corrective asset maintenance plan in your workflow, since it allows your operation to quickly repair assets in the event of a breakdown. The faster your operation gets back to working order, the less your ROI will suffer for that particular asset.
Next Steps: Tracking Your Assets Today
Boosting asset ROI is all about keeping your assets well-maintained as long as possible. To do so, you’ll need to have full visibility of where those assets are and what condition they are in.
Developing a maintenance plan, adapting an asset tracking software, and training all your employees regularly isn’t easy, but it’s the path towards a robust ROI for each and every asset in your business.
