Will the Machine Pay for Itself? Payback and EMI

A salesman will tell you what a machine saves. A lender will tell you what the instalment is. Nobody in the room is paid to tell you whether the two numbers work together in your unit, at your volume. That is a sum you can do yourself in ten minutes, and it is worth doing before you sign anything.

Two questions, not one

Buying a machine on a loan raises two separate questions, and they have different answers:

• Does it pay for itself? How many months of savings it takes to cover everything you put in.
• Can you carry it while it does? Whether each month's saving is bigger than that month's instalment.

A machine can pass the first and fail the second. It can pay for itself comfortably over three years and still leave you short every month for the first one. Work out both.

Step one: get the real figures

The sum is only as good as what goes into it. Five numbers, and the first three are the ones people get wrong:

• Price including tax, not the price in the advert.
• Everything that comes after the quotation — installation, exhaust, a chiller, wiring, a stabiliser, a table. Ask for each of these in writing. They are real money and they are rarely in the first number you are quoted.
• What the same job costs you today — hand cutting, or an outside job worker. Measure it for a month rather than remembering it.
• What it will cost with the machine — your own running cost per garment. For a laser, the cost-per-garment calculator works this out.
• Garments per month — what you actually cut now, not what you hope to win.

Add one more that is easy to forget: the fixed monthly cost the machine brings with it — an operator, the service contract, the floor space it takes.

A worked example

These figures are made up to show the arithmetic. They are not a quote and not a claim about any machine or any unit. They are the same starting values the two calculators below open with, so you can check every line.

• Machine price including tax: ₹4,50,000
• Installation, exhaust, chiller, wiring: ₹60,000
• Saving per garment: ₹33
• Garments a month: 900
• Fixed monthly cost the machine adds: ₹4,000

Invested: ₹4,50,000 + ₹60,000 = ₹5,10,000. Gross saving: ₹33 × 900 = ₹29,700 a month. Less the ₹4,000 fixed cost, net saving is ₹25,700 a month. ₹5,10,000 ÷ ₹25,700 = 19.8 months.

Put your own five numbers into the machine payback calculator and it does the same sum.

What happens when volume is lower

Same machine, same ₹33 saving, same ₹4,000 fixed cost — only the monthly volume changes:

• 900 garments: net ₹25,700 a month, paid back in 19.8 months.
• 600 garments: net ₹15,800 a month, 32.3 months.
• 400 garments: net ₹9,200 a month, 55.4 months.
• 300 garments: net ₹5,900 a month, 86.4 months — over seven years.

And there is a floor. The machine has to save enough on each garment to cover its fixed cost before it saves you anything: ₹4,000 ÷ ₹33 is about 121 garments a month. Below that it costs you money every month it runs.

Now the loan

Say you pay ₹90,000 down and borrow the other ₹3,60,000 at 12% a year over 36 months. That rate is an example, not a quote — use the one on your lender's sanction letter, not the “starting from” rate in an advertisement.

A standard reducing-balance loan gives an instalment of ₹11,957 a month. Over 36 months you repay ₹4,30,457, of which ₹70,457 is interest. The machine has cost you ₹5,20,457 in all, not ₹4,50,000. The EMI calculator works this out for any amount, rate and period.

Can you carry it?

Compare the instalment with the net saving. At 900 garments the saving is ₹25,700 and the instalment ₹11,957, so you are ₹13,743 ahead every month. At 400 garments the saving is ₹9,200 against the same ₹11,957: you are ₹2,757 short every month, and that comes out of the rest of the business. Same machine, same loan, opposite result.

Does the interest change the payback?

Yes, and the payback calculator says so itself: it leaves interest out. Count everything you pay — ₹90,000 down, ₹60,000 installation and ₹4,30,457 in instalments, ₹5,80,457 in all — against ₹25,700 saved a month, and it is about 22.6 months, not 19.8. The finance cost added a little under three months.

What the sums leave out

• The learning period. Output in the first month or two is usually well below what the machine settles at.
• Downtime. A machine that is down is not saving anything, and the work it was meant to do still has to be done somewhere.
• Fees. Processing fees, insurance and charges on the loan are not in the instalment figure.
• A floating rate. If yours moves, so does the instalment.
• Work you hope to win. A machine bought for work that has not arrived pays back on the day the work does, not before.

Before you sign

• Get the full repayment schedule, not just the monthly figure.
• Ask what fees are charged on top, and when.
• Get installation and service costs in writing, with the quotation.
• Run the payback at your lower volume, not your best month.
• Check the instalment against the saving at that lower volume. If it does not cover it, that is the number to take to the lender.

If you are weighing this against other things a unit could spend on first, the four-question page sets out the order we would do them in, and the sewing machine brand comparison and the laser cutting guide cover what to ask about the machines themselves.