Return on Investment refers to the revenue gained over a specific time period compared with the amount of capital that was invested.

The purpose of calculating or predicting the “return on investment” is to measure the rate of success in correlation to amount of capital that is being invested into something. If there is a low “return of investment” percentage then one can conclude that that investment was not worth reinvesting in. However, if there is a high “return of investment” then one can conclude that that investment was indeed worth reinvesting in.

Payback Period refers to the amount of time that it takes for an investment to be reimbursed. “Payback period” is most commonly used as a term in respect to financial or investment areas, but the term can also be applied specific investments (e.g., a new piece of mining equipment or technology.) For this general calculation, the time rate of money is often ignored, as is the life of the investment.

Suppose you are considering buying a shiny new electric shovel. You estimate that the shovel will allow you increase your production rate to earn an extra $3M/year, but the shovel will cost you $10M. The payback period is $10M/($3M/year) = 3.33 years.