Simple Payback Period
Also known as payback period · how long to pay for itself · energy retrofit payback
Enter your known values, leave one input blank, and solves for the missing one. Try different units for next level excitement!
Learning zone
Divide what an upgrade costs by what it saves each year and you have the number every facility manager asks for first. A $12,000 control retrofit that trims $3,000 a year off the utility bill pays back in four years. It is quick, it needs no financial background, and it is the most widely used capital screening test in the trades.
It is also the crudest. Simple payback ignores the time value of money, treating a dollar saved in year seven as equal to a dollar saved next month. Worse, it is blind to everything that happens after the payback date: a measure that pays back in five years and then keeps saving for twenty is vastly better than one that pays back in four and fails in five, yet simple payback ranks the second one higher. It also ignores maintenance, escalating energy prices and salvage value.
Use it as a first filter, not a decision. When the numbers are large enough to matter, discount the annual savings properly and compare present values instead. The saving here is entered as money per year, since the site has no dollars-per-year unit, so keep the period straight in your head.
- = Payback period
- = Capital cost
- = Saving per year
- Payback period — Speed in Circular Motion (v = 2πr/T), Angular Velocity from Period
- Capital cost — Markup Percentage (on Cost), Gross Margin Percentage (on Price)
- Saving per year — Straight-Line Depreciation, Loan Payment (Amortized Loan or Mortgage)