Calculating ROI – LED Lighting Upgrades

LED costs have dropped dramatically over the past 10 years. The payback period can be very short, especially when paired with eligible rebates through local utility companies. Combined with flexible financing options with no out-of-pocket costs, attractive fixtures, and better room illumination, it is tough to resist an upgrade.

There are many variables to consider that can impact your overall project costs – and therefore payback period and ROI calculations:

  • Lower Wattage per light bulb or per fixture means fewer kilowatt hours are consumed (and billed by your utility).
  • Fewer Fixtures. LED lights are more efficient, so it is possible to use fewer fixtures to get the same amount of light – up to 50% more lumens per watt.
  • Improved Controls.  LED lights can be controlled, or dimmed, for different purposes, which can also reduce the amount of kilowatt hours consumed.
  • Installation costs can vary dramatically.  Fixture replacements can be done by a company’s own experienced maintenance crew or through lighting installation specialists.
  • Extended Life.  LED lights last up to 10 times the number of hours of incandescent lights, and 2 times as long as compact fluorescents (CFL).  This can lower bulb replacement costs – materials and labor.
  • Rebates.  Most utility companies offer some form of funding, incentives, or rebates for commercial efficiency projects, including lighting.  The key is that the rebate application and documentation usually must be filed prior to the project commencing or a P.O. being signed.
  • Financing. Banks, lighting companies, and energy service companies are offering zero- and low-interest loans with little to no out-of-pocket costs.  In other words, the loan payment may be funded completely by the savings on your utility bill.  Watch out for other fees the vendor may add on. It is possible to still end up with no net out-of-pocket costs, but remember to keep track of how long it takes until you can start to keep all of your savings.



Payback Period = Cost / Savings

ROI = (Savings * # of Years / Costs) – 1

Where cost components are:

  • Light Bulbs / Light Fixtures
  • Controls
  • Supplies
  • Labor

Where savings components are:

  • Reduced kilowatts times the number of hours per year with lights on (kWh)
  • Electricity rate (average commercial rate varies by utility, $.12 is good average to start with)
  • Rebates (off-set to costs)
  • Maintenance and Bulb Replacement

Make sure you are using your overall electricity rate, not just the supply rate.


For more information about the rebate programs of the different utility companies, check out these links:

First Energy