Simple payback, often referred to just as payback, describes the length of time needed for the savings generated by a resource efficiency project to return the initial investment made. It is calculated using the formula:
Thus, an investment of US$1,000 that yields regular annual savings of US$500 has a payback of two years. The annualized saving could be determined by a number of uneven cash flows, e.g. US$250 in year 1 and US$750 in year 2; here, the payback period is determined by adding up successive savings in the cash flow until they match the investment. If we are interested in the payback in months, then we would multiply the annual payback by 12.