Equipment Investment ROI Case Example

The problem

Equipment decisions are often made on emotion or supplier pressure. A simple calculation usually clarifies the answer.

A small business example

Equipment cost: $12,000. Useful life: 5 years.

Expected monthly impact: $500 labor savings + $300 new revenue = $800/month benefit.

Payback ≈ $12,000 ÷ $800 = 15 months. Over 5 years: $48,000 benefit on $12,000 cost.

What the numbers mean

After 15 months, the machine has paid for itself. The remaining 45 months produce mostly profit.

Practical interpretation

A 15-month payback with 5 years of useful life is usually a strong case — provided the benefit estimate is realistic.

Action points

• Use conservative monthly benefit numbers.
• Confirm payback is well within the equipment's useful life.
• Check that cash for the purchase doesn't break your buffer.
• Re-evaluate 6 months after purchase: did the savings actually appear?