Four Criteria for Total Cost of Ownership Analysis and the #1 Revenue Killer when Owning and Operating a CO2 Extraction System.
If you’re purchasing a CO2 extraction system for essential oils, you’re thinking long and hard about return on investment, or ROI. But, you may be overlooking the extraction system's total cost of ownership, or TCO.
Total cost of ownership affects ROI, yet it’s harder to calculate and more likely to catch you off guard. Some of the expenses are variable. Some are hidden. Others—especially with extraction systems—are unpredictable and can cause compounding drops in revenue that jeopardize business continuity.
Though it’s not traditionally considered a cost, excess downtime is a liability that can badly impact your business
The bottom line? A machine that creates more expense (e.g., has a higher total cost of ownership) will undermine long-term profitability and could poke a permanent hole in your wallet. Taking some time to examine TCO now is worthwhile!
This post unpacks the subject of extraction system TCO so you can make informed cost decisions in the most critical areas: reliability, maintenance, service, price and — most importantly — machine downtime.
Analyzing TCO the Traditional Way
Financial analysts assess an asset’s total cost of ownership from acquisition to eventual disposal. More sophisticated analyses may even include environmental impact, but any good TCO breakdown will include what analysts call “obvious costs” and “hidden costs.”
- Acquisition (purchase price, shipping, taxes)
- Machine operation (electricity, consumable parts)
- Staffing expenses caused by difficult machine operation
- Costs of switching to a new machine
- Service expenses
In the information technology industry, hidden costs are all-important. It’s challenging to anticipate the cost of a software package or new computer system; obvious costs are just the tip of the iceberg. Employee training, integration with other systems, and the electrical costs of operating and cooling a computer system can far exceed the purchase price.
So, analysts in the IT industry will spend lots of time investigating hidden costs. They invest significant time and resources into researching or testing software and equipment on site before a full purchase. And they’ll assess their new business partner’s ability to fulfill service contracts and honor warranties, too.
TCO analysis for extraction systems is less complex than IT, but just as impactful. The most significant obvious cost is maintenance. Of the hidden costs, service and staffing hit the hardest — within a traditional TCO analysis.
But in the financial considerations of a botanical oil extractor, the most impactful operational dynamic is machine downtime. Though it’s not traditionally considered a cost, excess downtime is a liability that can badly impact your business. Given the extremely high revenue potential of botanical oil extraction, a problematic machine creates a cost that can eclipse all others.
Four Criteria to Consider when Evaluating TCO
Overall system quality is the key to reducing ownership costs. Avoiding repairs and eliminating unplanned downtime will boost your bottom line. What’s more, a high-quality machine will last longer, thus significantly offsetting the upfront cost.
At Eden Labs, we design for simplicity and manufacture for durability. In fact, the core components of our machines have a nearly-indefinite life. While components like the pump and chiller have predictable life cycles when properly maintained, our extractor and separation vessels, as well as fabricated componentry have a three year warranty.
Our extraction systems use 316 stainless steel—unlike comparable systems which use lesser, 304 stainless. Other providers may use nickel-plated carbon steel, which can scratch over time because the metal is relatively soft. This exposes the system to the risk of rust and structural failure.
Many properly maintained Eden systems have been in operation for over ten years!
Overly complicated systems have more points of failure and are naturally more prone to breakdowns. The greater the number of subsystems and moving parts, the greater the number of problems the machine will create. This adage applies not just to hardware but to the automation systems.
The sensors and software that run automation must be just as robust as the hardware overall. Engineers at Eden Labs take a reasoned approach to automation. We design for simplicity and optimal process control—while minimizing vulnerabilities. For some customers, that means a fully manual machine; for others, pre-programmed protocols or data collection and analysis.
The pump is often referred to as the “heart” of the extractor system. At Eden, we spec our systems to maximize asset utilization. Make sure your new system has an appropriately designed and sized pump made by a reputable manufacturer with a good warranty. Pumps are usually warrantied through the OEM manufacturer, not the extraction system manufacturer.
2. Maintenance and staffing costs
Maintenance expenses are straightforward. Materials and replacement parts are fixed costs, and maintenance staffing can be predicted on schedule. Maintenance schedules may vary between extraction systems.
Eden recommends a 5- to 6-hour flush once per week. And that’s it. Simply running CO2 through your machine once a week is sufficient, even with around-the-clock operation. Gaskets will need replacement every few runs and valves will wear too, but maintenance directly related to the core system is minimal.
The pump will need to be serviced every 3 to 6 months. You can rebuild the pump yourself or have it serviced by Eden or the pump manufacturer.
Staffing costs can be unpredictable, too, depending on your machine’s ease of use and reliability. The complexity of the tasks that your operator must perform matters. Any troubleshooting of issues should be rapid and intuitive. A more complicated machine, like those with poorly designed automation, may cost more in payroll because troubleshooting can get messy fast. Moreover, it’ll make your staffing expenses unpredictable because of slowdowns and breakdowns.
Great companies provide great service. Since a strong relationship with a reputable manufacturer is essential to keeping your machine running and your expenses down, Eden Labs honors a 3-year warranty on our systems. Our available maintenance packages include on-call service with a four-hour response time.
Eden Labs offers a comprehensive self-sufficiency kit to support your machine and keep it running 24/7. The kit includes ‘consumables’ like gaskets and the small parts that need replacement under normal operation. But, more importantly, the kit has the option for a replacement pump for quick changeover when you need to rebuild the one you’ve had running. With the Eden self-sufficiency kit, you get maximum “uptime” out of your system.
..and (only then) purchase price:
Sticker price matters, and a system is a major purchase. The cost of a high-performance CO2 extraction system is well into six-figures when accessories are included. But price only matters so much.
Sparing expenses upfront isn’t always a good idea. In fact, a more expensive machine could have a lower ownership cost. And a higher quality machine will have a longer service life and thus a lower cost per year. And, should your business plans change, an Eden machine will retain value longer than its competitors and fetch a higher resale price.
Some newer extraction system manufacturers may try to win your business with a lower upfront price only to fold a couple of years later. New “green rush” manufacturers have gone out of business by selling systems too cheaply, misjudging manufacturing costs, and quickly finding themselves consumed by warranty claims or even outright returns.
The #1 Revenue Killer: Unpredicted Downtime
But the biggest thing to watch out for with the extraction system total cost of ownership is unpredicted downtime (read: unreliability).
An extraction machine is a powerful asset with significant revenue potential, but to capitalize on it, you have to use it. If a machine suffers reliability issues and creates unplanned downtime it can go beyond the obvious revenue loss. Reliability issues will strain staff and compromise your growth. If sophisticated troubleshooting is needed, expect to pay top dollar for skilled technical labor. A stop-and-start supply chain may damage your business relationships, too.
When you’re going to great lengths to maximize production (i.e., staggering shifts, operating 24/7, running multiple machines), offline time is unacceptable. Your new system can’t be a stop-go bottleneck, especially when the stops last for multiple days.
Many Eden systems have been in continuous operation longer than ten (10) years.
The ripple effect of a non-functioning extractor extends far: production ceases but — for the most part — expenses don’t. Hourly wages still need to be paid though your employees don’t have the ability to produce product.
And, in domino-like fashion, other parts of your operation are affected too. Post-processing equipment goes unused as the supply of crude oil dries up, as does the ability to compound your final product. If an unreliable extraction system is the weak link in your chain of production, all other equipment effectively becomes equally unreliable.
The final word on extraction system TCO
- Look for equipment with a proven reputation for reliability and a company with the ability to stand behind their warranty
- Understand maintenance and staffing based on ease-of-use
- Assess how the manufacturer will provide service and troubleshooting
- Then, reexamine the sticker price in reflection of other factors
Quantifying these costs may be difficult, but by taking the time to make estimates, you can choose a better system and reap the rewards for years to come.
For help assessing costs—or for more information on the extraction equipment that’s right for you—contact Eden Labs today.