An energy investment's **Simple Payback Period** is the amount of time it will take to recover the initial investment in energy savings, dividing initial installed cost by the annual energy cost savings. For example, an "energy-saving" measure that costs $5,000 and saves $2,500 per year has a Simple Payback of $5000 divided by $2500 or 2 years.

**Simple Payback** | **=** | **Cost** | | **$5,000** | **=** | **2 years** |

**------------** | **------------** |

**Savings** | **$2,500/year** |

While Simple Payback is easy to compute, its weakness is that it *fails* to factor in: the **time value of money**, **inflation**, **project lifetime** or **operation**, and **maintenance costs**. To take these factors into account, a more detailed Lifecycle Cost Analysis must be performed. Simple Payback is useful for making "ballpark" estimates of how long it will take to "recoup" an initial investment.