Investment income profile targets can be established based on development cost, payback period, and a relative annual income profile.

Assume annual income is x_i where i is the year number. Let p_i be the relative weight for each year i relative to Year 1. For example, if Year 1 income is x then Year 3 income is p₃x. The italics emphasize that the coefficients are relative to Year 1, and not the same as annual growth rates.

By definition, p₁ is 1. The income generated over a five‐year period would be:

We also know the following relationships:

Therefore, the income S returned after three years is:

Therefore,

Assume a development cost of $570K and a relative income profile projection as shown in Table B.1.

Substituting the values for p₂ and p₃ gives

Years 2 and 3 can be calculated as

The income for the first three years returns the development cost of $570. The forecast can be extended to any number of years by multiplying the growth rate by Year 1 income. Revenue can be estimated by dividing by the projected margins. In A margin of 80% is assumed in Table B.2, but different values could be used for each year.

This example assumes a payback period expressed in whole years. The formula can account for a partial year. For a 2.75 year payback period, the relative percent for the fractional year is multiplied by 0.75 to reflect income from the first three quarters of the third year.

Annual income for Years 2 and 3 can be calculated

The payback can be verified by

A downloadable Investment Income Profile Calculator spreadsheet is available at www.construx.com/product-flow-optimization-calculators.