Simple ROI and Payback Period

What is ROI?

Return on Investment (ROI) shows how much profit an investment generates relative to its cost. It is a quick way to compare different opportunities.

ROI % = (Net Gain ÷ Investment Cost) × 100

What is the payback period?

The payback period is the time it takes for an investment to return the money you put in. A shorter payback usually means lower risk.

Payback (months) = Investment Cost ÷ Monthly Net Gain

Why these matter

• Help compare equipment purchases, marketing campaigns, or new hires.
• Give a clear, simple signal of financial benefit.
• Make it easier to say no to weak opportunities.

Practical example

You buy a €2,400 espresso machine that adds €200 of net monthly profit. ROI in year one = (2,400 ÷ 2,400) × 100 = 100%. Payback = 2,400 ÷ 200 = 12 months. After one year, the machine has paid for itself and keeps generating profit.

Practical tips

• Use realistic, conservative estimates for gains.
• Include all related costs — setup, training, maintenance.
• Combine ROI with payback: high ROI with slow payback can still be risky for small businesses.