--- title: "How to Calculate ROI and Payback on a Business Purchase" description: "A simple way to judge a purchase with ROI and payback period, using a worked example, what costs to include and the mistakes that overstate returns." url: "https://mcc-solutionsnj.com/bookkeeping/guides/how-to-calculate-roi-on-a-business-purchase" --- Bookkeeping guide · Updated October 23, 2026 # How to Calculate ROI and Payback on a Business Purchase Before buying equipment, software or a vehicle, it helps to ask what you get back. Return on investment and payback period are two simple tools for that. This guide shows both with one example and the costs people often leave out. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** ROI equals the gain from a purchase minus its cost, divided by its cost. A $10,000 machine adding $4,000 of profit a year for three years gains $12,000, so subtracting the $10,000 cost leaves $2,000, an ROI of 20% over three years. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Trial balance explained](/bookkeeping/guides/trial-balance-explained) · [Owner contribution or loan](/bookkeeping/guides/owner-equity-and-capital-contributions) · [Closing entries and retained earnings](/bookkeeping/guides/closing-entries-and-retained-earnings) **Free tools:** [ROI and payback calculator](/bookkeeping/roi-and-payback-calculator) · [How many sales do I need to break even?](/bookkeeping/break-even-calculator) [Financing it? Check the payment with the business loan payment calculator](/bookkeeping/business-loan-payment-calculator). [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## Return on investment ROI equals the gain from the purchase minus its cost, divided by its cost. If a $10,000 machine adds $4,000 a year in profit for three years, the total gain is $12,000. Subtract the $10,000 cost to get $2,000, and divide by $10,000, for an ROI of 20% over three years. Be careful to use profit, not revenue, in the gain. Extra sales that cost money to make are not all gain. ## Payback period Payback tells you how long it takes to earn back the cost. Divide the cost by the yearly benefit. For the machine above, $10,000 divided by $4,000 is 2.5 years. A shorter payback means less time at risk. It ignores what happens after payback, so a purchase with a long payback may still be worth it if it keeps producing for many years. ## Include all the costs Count the purchase price, delivery, setup, training, maintenance, insurance, financing interest and any fee for the first year. For software, include the subscription for the whole period you will use it. Also count your own time. A tool that saves ten hours a month is only worth the hours you would really use for something else. ## Estimate the benefit honestly Base the benefit on something you can measure: hours saved, extra jobs completed or lower spoilage. Use a conservative number, and test what happens if the benefit is half as large. If the purchase only works under the best case, it is risky. If it still pays back under a cautious case, it is easier to justify. ## Record it correctly A purchase of equipment is usually recorded as an asset and written off over its life, not as an expense all at once, though tax rules differ from book rules. Ask your tax preparer how a particular purchase is treated. After you buy, compare the results to your estimate a few months later. That shows whether your assumptions were realistic and improves the next decision. ## A comparison of two options Say you can buy a $10,000 machine that returns $4,000 of profit a year, or spend $6,000 on software that saves $2,400 a year. The machine pays back in 2.5 years and the software in 2.5 years too, but the software ties up less cash and carries less risk. Add the lifespan. If the machine lasts ten years and the software needs replacing in three, the lifetime return changes. Put each option on the same footing before you choose, and keep the cash you need for operating the business. ## Common questions **What is a good ROI?** It depends on the risk and alternatives. Compare it to what else you could do with the money, including paying down debt. **Should I use payback or ROI?** Use both. Payback shows how fast you recover cash, and ROI shows the overall return. **Can I lease instead of buying?** Often, yes. Compare the full cost of each, including interest and what you own at the end. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. 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