Equipment ROI Calculator

How it is calculated

Two simple ratios are used, with no discounting. Payback period (years) = equipment cost / annual benefit and Annual ROI (%) = annual benefit / equipment cost × 100. The annual benefit is the net yearly gain from the equipment: extra revenue plus cost savings, minus the running costs it adds, such as energy, maintenance, insurance and operator time. The payback is rounded to one decimal and shown in years; the purchase cost is echoed back as a dollar amount. Both the cost and the annual benefit must be above zero, otherwise no result is shown (a benefit of zero would mean the equipment never pays back). The tool assumes the same benefit every year and ignores interest, taxes, depreciation and resale value.

Common mistakes

• Entering the gross revenue instead of the net benefit. If the equipment adds 30,000 of sales but 12,000 of extra costs, the benefit is 18,000.
• Forgetting running costs such as electricity, maintenance, consumables and operator wages.
• Swapping the two fields. The benefit is the smaller yearly amount; the cost is the one-off purchase price.
• Reading a short payback as proof of a good investment. The tool ignores the equipment's useful life, so a 2.5-year payback on a machine that lasts 2 years loses money.
• Comparing the annual ROI with an interest rate without accounting for the time value of money, which this simple ratio does not do.