What does simple payback involve?

Simple payback is a straightforward financial metric used to evaluate the time it takes for an investment in a project, such as energy efficiency upgrades or other modifications, to be recovered through savings. The key calculation involves taking the total cost of the modification and dividing it by the annual monetary savings that the modification generates.

This approach allows stakeholders to quickly see how many years it will take for the savings from the investment to equal the initial expense. For instance, if a modification costs $10,000 and it provides $2,000 in annual savings, the simple payback period would be five years, calculated by dividing $10,000 by $2,000.

This method is effective for comparing various projects, particularly when considering how quickly investment returns can be realized, making it an essential tool in energy management and utility services planning. By focusing on the balance between cost and savings, individuals and organizations can make informed decisions about which upgrades yield the best financial outcomes within acceptable timeframes.