Calculate return on investment for tools, equipment, and business decisions. Determine payback period, net profit projection, and investment comparison.
Enter investment details to calculate ROI, payback period, and net profit projections.
Return on Investment (ROI) measures the profitability of an investment relative to its cost. For woodworking businesses, ROI analysis helps evaluate tool purchases, equipment upgrades, shop improvements, and business expansion decisions.
ROI = (Net Profit / Total Investment) x 100% Payback Period = Initial Investment / Annual Net Benefit Verdict: Excellent investment - pays for itself in 1.5 years with 100% return over 3 years.
| Investment Type | Typical Cost | Payback Period | Expected ROI (3yr) |
|---|---|---|---|
| Quality Hand Tools | $200-1,000 | 3-6 months | 300-500% |
| Power Tool Upgrade | $500-3,000 | 6-12 months | 150-300% |
| Dust Collection System | $1,000-5,000 | 12-18 months | 100-200% |
| CNC Router | $10,000-50,000 | 1-3 years | 75-150% |
| Shop Expansion | $20,000-100,000 | 2-4 years | 50-100% |
| Marketing / Website | $2,000-10,000 | 3-12 months | 200-500% |
Percentage measure of investment profitability. ROI = (Net Profit / Investment) x 100. Positive ROI means the investment generates more than it costs.
Time required to recover the initial investment from net benefits. Shorter payback = lower risk. Generally, 1-2 years is excellent, 3-5 years is acceptable for major equipment.
Total present value of future cash flows minus initial investment. Accounts for time value of money. Positive NPV means investment creates value.
Value of the next best alternative foregone. If investing $10,000 in a tool, the opportunity cost is what that $10,000 could earn elsewhere.
Complete cost including purchase price, installation, training, maintenance, consumables, and disposal. Often 2-3x the initial purchase price over equipment lifetime.
Target at least 50% ROI over 3 years for major equipment (100%+ for smaller tools). Payback period under 2 years is excellent. Consider both tangible (revenue, time savings) and intangible (quality, capability) returns.
Estimate time saved per project x projects per year x hourly rate. Add new revenue from expanded capabilities. Example: saving 2 hours/project x 50 projects/year x $50/hour = $5,000/year in additional capacity.
Yes, if financing the purchase, include interest payments in annual operating costs. Compare total cost of financing vs. paying cash. Equipment financing typically runs 5-10% APR for qualified businesses.
Depreciation reduces taxable income but is not a cash expense. For ROI calculations, use actual cash flows (purchase price, operating costs, revenue). Consult an accountant for tax depreciation benefits.
Quality tools retain 30-60% of value. Include estimated resale value as revenue at end of evaluation period. Well-maintained equipment holds value better. Factor into long-term ROI calculations.
Calculate ROI and payback period for each option using consistent assumptions. Choose the option with highest ROI if budgets allow, or shortest payback if cash flow is tight. Consider risk tolerance and strategic fit.