Ivo Pasqualini: selling sheet metal fiber cutting machines. Part 3: of sheep and wolves

Step 4 [See Pt.2 for Steps 1 to 3]

Understanding the machine's productivity makes calculating the return on investment more straightforward. However, when confronted with high-performance numbers, another question arises, as a client friend once asked me: "But if I don't have such high production levels, what do I do with such a high-performance machine? Should I invest in it or opt for something more moderate?"

To address this, we reasoned together using the hourly cost of the machine as a reference. The hourly cost of a laser machine, regardless of its specifications, typically comprises three main components, which remain consistent for all users:

Approximately 100 euros represents the hourly cost of operating a laser machine in production. However, upon closer examination of the breakdown, we uncover something intriguing: 50 per cent of this cost accounts for depreciation, while the remaining portion encompasses overhead expenses and operator costs.

At this point we come back to the question, "Should I spend this money or settle for something more 'quiet'?" The answer is YES! Performance is always a winner and allows for lower production costs.

Let's look at this example where we compare in a workday two machines; one slow and one fast.

Over the course of eight working hours, the slow machine accrues operator costs and overhead costs, totaling €400 when multiplied by 8 hours. Additionally, it incurs €416 in depreciation over the same period. Thus, the total cost of a day's work for the slow machine amounts to €816.

If we apply the same calculations to the fast machine, which completes the work in just 4 hours instead of 8, the total cost amounts to €616. This is significantly lower than the cost for the slow machine. Moreover, with the fast machine completing the work in half the time, there are 4 additional hours available. If there is no more sheet metal to cut during these remaining hours, the operator can be redeployed to another cost center, further increasing the benefits to the company.

It's not uncommon for customers, including my friend, to be a bit mischievous. He remarked, "Yes, Ivo, you've convinced me that the high-performance machine is far more advantageous than a slower one. Even if it operates for only four hours instead of eight, I'd still double my output. But you're expensive, costing much more than your competitors. I'm not sure if it's worth it for me."

Facing this legitimate question, we revisited the calculations, this time comparing a "slow and affordable" machine valued at €300,000 against a "fast and expensive" machine valued at €500,000. Once more, the results leave no room for equivocal interpretation:

What changes from the previous table is the investment value, which drops from €500,000 to €300,000, and the hourly cost decreases from €51 to €31.25 euros.

In summary, we can confidently assert that investing in a high-performance machine is always advantageous, even if it operates for only four hours instead of eight and costs €200,000 more than a slower one.

At this juncture, the next question I posed to the customer was: "Given your market position and competitors, where do you aspire to be—in the league above or below?"