Switching to LED lighting is an investment many businesses consider due to its long-term benefits. But how can you verify that it’s the right financial decision for your operations? The key lies in determining the return on investment (ROI). Below, we break down the essential steps to help you calculate the ROI of your LED lighting conversion.
Step 1: Determine the Initial Investment
Start by identifying the total upfront costs of the LED lighting and installation. Outside of the price of the bulbs, be sure to include the cost of LED fixtures if you need them, potential installation fees by a licensed electrician, and any additional expenses that might come up. For example, if you need 200 LED bulbs at $5 each, 200 LED fixtures at $50 each, and $2,000 in installation costs, your total initial investment would be $13,000.
Step 2: Compare Energy Costs
One of the greatest advantages of LED lights is their energy efficiency. Compare your current energy bills with your projected energy costs after switching to LEDs. Here’s an example to make things clearer:
- Standard bulbs: A 200-watt traditional bulb running 10 hours daily uses about 2 kWh of electricity per day. At $0.12/kWh, this costs $0.24 per bulb daily.
- LED bulbs: An equivalent LED bulb uses just 30 watts, consuming 0.3 kWh daily, costing $0.036 per bulb each day.
For 200 bulbs, this difference quickly adds up. It’s $24 a day ($8,760 a year) to run standard bulbs but a mere $7.20 a day ($2,628 a year) for LED bulbs. Use this formula for your specific lighting setup and factor the savings into your ROI calculation.
Step 3: Account for Maintenance Savings
LED bulbs last much longer than incandescent, fluorescent, or halogen bulbs, reducing replacement frequency and costs. If you’re currently replacing standard bulbs every year, you’ll be happy to know that some LED fixtures can last 15–20 years. That means you’re looking at significant savings in labor and bulb replacement costs.
Step 4: Calculate Total ROI
With the above data points, it’s time for the final step in calculating the ROI of your LED lighting investment. You can put it all into this formula:
ROI (%) = [(Savings - Initial Investment) ÷ Initial Investment] × 100
Here’s an example that uses potential savings and cost numbers so you can see how it works:
- Initial investment = $12,000
- Annual energy savings = $5,000
- Annual maintenance savings = $1,000
- Total yearly savings = $6,000
ROI after one year would be [(6,000 - 12,000) ÷ 12,000] × 100 = -50%. While that doesn’t sound great, by year two, your ROI would jump to [(12,000 - 12,000) ÷ 12,000] × 100 = 0%, meaning you would fully recoup your costs. By year three, you’d be enjoying a 50% positive ROI. And if your LED bulbs last for 15 years or so, your savings will continue to rise at a satisfying rate.
Beyond the Numbers: Additional Benefits of LED Lighting
While the cost savings are evident, the benefits of LED lighting go beyond financial metrics. LEDs provide more consistent, high-quality lighting that can improve employee productivity and reduce eye strain. They also have a reduced carbon footprint, supporting your organization’s sustainability goals. By switching to LEDs, you’re not only investing in operational efficiency but also reinforcing your green credentials.
So whether you buy something more basic and decorative like LED shaped filament bulbs or something more business oriented like commercial LED lights, you can rest easy knowing that your purchase is the best choice for your establishment.