Equipment ROI Calculator
Evaluate investment returns for laser cutting and CNC equipment⚠️ Before-tax analysis - consult advisors for final decisions
Investment Parameters
Typical values reference
Discount rate (for NPV)
- • 6–8%: Lower-risk, established business and stable demand
- • 10–12%: Typical for many manufacturing investments
- • 15–20%: Higher-risk, new markets or aggressive growth
Annual revenue growth
- • 0–3%: Conservative (inflation-level growth)
- • 5–8%: Moderate expansion in a healthy market
- • 10–15%: Aggressive plan that should be justified by a clear pipeline
Down payment and financing rate
- • Down payment 10–30%: Common for equipment financing
- • Financing rate 6–10%: Typical for creditworthy industrial borrowers
- • Higher rates: Reflect greater risk or weaker credit profile
Start with conservative assumptions (higher discount rate, lower growth) to see a downside case, then explore upside scenarios. Always align these ranges with your accountant or finance team.
Ready to Analyze ROI
Enter your investment parameters to see detailed ROI analysis
Investment Decision Framework
Making the right equipment investment decision requires analyzing multiple financial metrics. Here’s how to evaluate your investment systematically.
Return on Investment (ROI)
Formula: (Net Profit / Initial Investment) x 100%
Interpretation: Higher ROI means more return per unit of capital invested, but what counts as “good” depends on your funding costs, business risk, and alternative investments.
Consider: ROI alone doesn’t account for time value of money
Use case: Simple comparison between investments of similar duration
Payback Period
Definition: Time to recover initial investment
Interpretation: Shorter payback reduces the time your capital is at risk, but acceptable timelines vary by business model, financing terms, and how strategic the equipment is for your operations.
Limitation: Ignores profits after payback period
Best for: Quick screening of investment opportunities
Net Present Value (NPV)
Definition: Present value of future cash flows minus investment
Interpretation: Finance texts often treat positive NPV, given a chosen discount rate, as indicating a value-creating scenario, but real decisions usually weigh NPV alongside risk, liquidity, and alternative uses of capital.
Advantage: Accounts for time value of money
Discount rate: Choose a rate that reflects your cost of capital, risk profile, and opportunity cost of funds.
Best for: Comparing mutually exclusive projects
Internal Rate of Return (IRR)
Definition: Discount rate where NPV = 0
Interpretation: IRR is most useful when compared against your cost of capital and other investment options rather than against a universal target percentage.
Limitation: Can be misleading with non-conventional cash flows
Use case: Ranking multiple investment opportunities
Real-World ROI Case Studies
The following case-style examples illustrate how different assumptions about investment, savings, and utilization can affect ROI. They are simplified and not industry benchmarks. Always base your own analysis on actual costs, prices, and volumes from your business.
Case Study 1: Job Shop Adds Fiber Laser
ROI: 68% Year 1Investment
$175,000
6kW fiber laser + installation
Annual Revenue Impact
+$240,000
Previously outsourced work
Payback Period
18 months
Including ramp-up time
Key Success Factors:
- Had existing customer base requiring laser cutting (previously outsourced at 2.5x markup)
- Operator training completed before machine delivery
- Started with familiar materials (mild steel, stainless) before expanding
- Machine utilization reached 65% by month 6, 85% by month 12
- Reduced lead times from 5-7 days (outsourced) to same-day turnaround
Case Study 2: Product Manufacturer Adds 5-Axis Mill
ROI: 42% Year 1Investment
$425,000
5-axis VMC + tooling + training
Annual Savings
$178,000
Reduced outsourcing + faster cycle
Payback Period
2.4 years
Conservative estimate
Key Success Factors:
- Complex aerospace parts previously required 4-6 setups, now 1-2 setups (60% time reduction)
- Part accuracy improved from +/-0.003" to +/-0.001" eliminating rework
- Programmer learning curve: 3 months to proficiency, 6 months to full optimization
- Qualified for new contracts requiring 5-axis capabilities (+$300k annual potential)
- First year utilization: 55% (below target) but revenue per hour increased 80%
Case Study 3: Failed Investment - Underutilized Wire EDM
ROI: -8% Year 1Investment
$145,000
Wire EDM + installation
Actual Utilization
18%
vs. projected 60%
Lost Investment
-$12,000
Year 1 negative cash flow
Lessons Learned:
- Overestimated demand: Projected 120 hrs/month usage, actual 35 hrs/month
- Skills gap: Existing staff unfamiliar with EDM, hired specialist at $75k/year overhead
- Lead times: Wire and consumables had 2-week lead time causing downtime
- Marketing issue: Existing customers did not need EDM capabilities
- Recovery plan: Pivoted to marketing EDM services, reached 45% utilization by year 2, positive ROI by year 3
Risk Factors & Mitigation Strategies
Demand Risk: Insufficient Workload
Risk: Equipment utilization ends up significantly lower than assumed in your ROI model, reducing or delaying expected returns.
Mitigation:
- Secure a realistic pipeline of work and customer commitments before purchasing
- Consider leasing or shorter-term arrangements at first if long-term demand is uncertain
- Evaluate whether lower-cost or used equipment could reduce your break-even point
- Begin marketing new capabilities ahead of installation so demand can ramp as the machine comes online
Technology Risk: Obsolescence
Risk: Equipment becomes outdated, losing competitive advantage.
Mitigation:
- Favor proven technologies and platforms over untested concepts unless you are prepared for higher risk
- Work with suppliers that have a strong service track record and local support
- Consider potential resale value in your scenarios instead of assuming equipment will run indefinitely
- Plan for a finite useful life and potential upgrade path in your ROI horizon
Operational Risk: Skills Gap
Risk: Cannot operate equipment efficiently, extending payback period.
Mitigation:
- Include appropriate training and support in the purchase contract
- Consider hiring experienced operators or investing in deeper training for existing staff
- Start with simple work to build confidence before complex jobs
- Allow for a learning curve period in your ROI scenarios rather than assuming full efficiency on day one
Financial Risk: Cash Flow Constraint
Risk: Equipment purchase strains working capital, affecting operations.
Mitigation:
- Consider financing structures that preserve sufficient working capital for day-to-day operations
- Maintain an operating reserve that fits your risk tolerance and cash flow volatility
- Phase investments: buy basic configuration first, add options as revenue grows
- Explore different loan and leasing options that match your scale and region, and review terms carefully
Market Risk: Economic Downturn
Risk: Recession reduces demand, making debt service difficult.
Mitigation:
- Diversify your customer base so no single account dominates revenue if possible
- Target countercyclical industries (medical, defense, essential goods)
- Monitor leverage and coverage ratios over time and avoid committing to debt service that your downside scenarios cannot support
- Build cash reserves that reflect your own view of acceptable risk and demand volatility
Key Financial Metrics Explained
Break-Even Analysis
Formula: Fixed Costs / (Revenue per Hour - Variable Costs per Hour)
Example (illustrative only): $150k machine / ($100/hr revenue - $40/hr costs) = 2,500 hours to break even
At 40 hrs/week this example would take about 62.5 weeks, at 60 hrs/week about 41.7 weeks. Your own break-even point will depend entirely on your actual rates and costs.
Insight: Higher utilization generally improves payback when fixed costs are significant, but the effect should be evaluated using your own numbers.
Machine Hour Rate Calculation
Components:
- Depreciation, labor, consumables, and overhead are all components you can include when building a machine rate.
- The specific dollar amounts will vary widely by shop, region, and equipment. Use your own cost structure and tools like the hourly rate calculator to build a rate rather than adopting generic figures.
Utilization Rate Impact
This calculator lets you test how different utilization assumptions affect revenue, profit, and ROI over time.
Instead of aiming for one fixed "right" utilization level, build scenarios that reflect your current workload, realistic ramp-up, and any capacity constraints, then see how sensitive the investment case is to those assumptions.
Financing vs. Cash Purchase
Cash purchase $150k:
- No interest expense
- Full ownership immediately
- Depletes working capital
Financed example:
- Spreads the cost over time in exchange for interest expense
- Can preserve cash for operations but increases fixed commitments
- Tax treatment of interest and depreciation will depend on your jurisdiction
Consideration: Compare cash and financed scenarios in this calculator using your actual loan terms, and ensure projected cash flow remains acceptable under conservative assumptions.
Frequently Asked Questions
Related Calculators
When to use this equipment ROI calculator
✓ Best suited for:
- Evaluating individual equipment purchases with clear revenue or savings assumptions
- Comparing financing vs cash purchase scenarios on the same machine
- Checking whether a proposed investment roughly meets your payback and ROI targets
- Communicating investment logic to partners, managers, or lenders
✗ Not ideal for:
- Full company valuations or multi-asset portfolio decisions
- Detailed tax planning or GAAP/IFRS-compliant financial statements
- Projects with highly uncertain or speculative revenue profiles
- Making final investment decisions without review by finance or tax advisors
Important: Investment Analysis (Before Tax)
This tool models cash flows and financing based on the assumptions you enter. It does not include income tax, depreciation tax shields, or local accounting rules.
Treat the outputs as structured what-if scenarios to compare options, not guaranteed returns or financial advice. Always consult with finance or tax advisors before making final investment decisions.