Annual-cost method
Compare repair and replacement by what each costs per year, not per invoice
The annual-cost method prices each option in euros per year of service. A repair costs its invoice divided by the years of remaining life it buys; a replacement costs its invoice divided by the lifespan of the new component. The lower annual cost usually wins.
The mechanism: invoices compare purchase prices, not durations. A EUR 400 repair against a EUR 2,000 replacement reads as a five-to-one argument for repairing, but the two numbers buy different amounts of time. Dividing each by its years puts both options in the unit the decision is made in. This is how professional asset managers compare the options for a building’s components; nothing in the arithmetic needs a professional to run it.
Worked example. Eero’s gas boiler in Espoo is nine years into a 15-year lifespan when the heat exchanger starts leaking. Repair: EUR 400 for the six years the unit has left, EUR 67 per year. Replace: EUR 2,000 for a new unit with a 15-year lifespan, EUR 133 per year. The repair wins on annual cost, and the assumption it rests on is visible: that the repair buys the full six years. A unit further along its two-inflection curve would deliver fewer years, and the comparison would tip.
The distinction matters at three moments. When a contractor says “not worth repairing,” the method turns an opinion into arithmetic you can check. A second repair on the same component within two years is the next: the per-year cost of repairing has climbed, and the comparison deserves a rerun. And when money is tight and replacement feels impossible, the method shows what the cheaper invoice costs per year, which is sometimes more.
Sibling frame: the two-inflection curve supplies the method’s critical input, the years a repair can honestly buy. The repair-vs-replace guide walks the full decision, and the free repair-or-replace calculator runs the arithmetic with sourced lifespan data.
Common questions
How do I decide whether to repair or replace a component?
Divide the repair cost by the years of remaining life it buys, and the replacement cost by the lifespan of the new component. The lower cost per year usually wins. A EUR 400 boiler repair that buys six more years costs EUR 67 per year; a EUR 2,000 replacement with a 15-year lifespan costs EUR 133 per year. In that example the repair wins, provided the unit is sound enough to deliver the six years.
Why not compare the repair quote to the replacement price directly?
Because the two invoices buy different amounts of time. EUR 400 against EUR 2,000 reads as a five-to-one case for repairing, but one buys six years and the other fifteen. Dividing each cost by its years puts both options in the same unit, euros per year of service, which is the unit the decision is made in. A cheap repair on a component near end of life can cost more per year than the replacement.
What is the weak point of the annual-cost method?
The years-remaining estimate. The arithmetic is only as honest as the assumption that the repair delivers the years it promises. A component late on its degradation curve, past roughly 75 percent of its rated lifespan, tends to fail again sooner, so a repair there buys fewer years than the quote implies. Check where the component sits on its curve before trusting the repair side of the comparison.