Dear Reader:

We’re pretty negative on the value of the Simple Payback metric in assessing the investment quality of a potential LED lighting retrofit, as it alone doesn’t do a very good job in modeling the complete benefits of LED.

We ‘get’ the need to produce it, as the vast majority of management personnel need to see it so that they can review the project in comparison for other competing projects that might be vying for money in a budgeting process, and it’s one of the primary metrics that companies use. The Facilities Manager has to speak in the language that’s being spoken, and all finance-oriented managers utilize Simple Payback as a comparative tool.

That said, it’s almost too simple to be meaningful, in our opinion. Simply put, and quoting WallStreetMojo.com, the formula for calculating Simple Payback is:

Simple Payback Period = Initial Investment / Net Annual Cash Inflow

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