Payback Period Calculator
Find how long an investment takes to earn back its cost from even or uneven yearly cash flows, plus the discounted payback at your chosen rate.
Payback period
3.33years
about 40 months
Discounted payback
4.03years
about 48 months
Payback = investment ÷ yearly cash flow; with uneven flows, the year the running total turns positive plus the share of that year needed
Payback ignores cash after the payback year. Look at NPV or IRR too before you decide.
Payback period formula
The payback period is the time an investment takes to return its cost from the cash it brings in. It is a quick test for machinery, a new vehicle, solar panels, software or a shop fit out: the shorter the payback, the sooner the money is back and the lower the risk.
Payback period formula
With the same cash flow every year: payback = initial investment ÷ yearly cash flow. 60,000 ÷ 18,000 = 3.33 years, about 3 years and 4 months.
With different flows each year, add them up year by year until the total covers the cost. Example: 60,000 invested, flows of 15,000, 20,000, 25,000. After two years 35,000 is back; the third year needs 25,000 of its 25,000, so payback is 3.0 years.
Discounted payback
Money received later is worth less. Discounted payback divides each year's flow by (1 + rate) to the power of the year before adding them up, so it is always longer than simple payback. Use your cost of capital or the return you could earn elsewhere.
Limits of payback
Payback ignores everything after the payback year, so a project that pays back fast but stops earning can look better than one that earns for years. Use it as a first screen, then look at net present value (NPV) or the internal rate of return (IRR). For a product rather than an asset, the break even calculator is the better tool.
Copy the result, or save it as a PDF to attach to an email or a report. Nothing you type leaves your browser.
Features
- Even or uneven cash flows
- Payback in years and months
- Discounted payback
- Tells you if it never pays back
- Formula shown
- Copy or PDF
Frequently asked questions
How do I calculate the payback period?
Divide the investment by the yearly cash flow if it is even. If it is uneven, add the flows year by year until they cover the investment.
What is a good payback period?
Many small businesses look for 2 to 3 years on equipment; energy projects often accept 5 to 8. It depends on the risk and how long the asset lasts.
What is the difference between payback and discounted payback?
Discounted payback reduces later cash flows for the time value of money, so it is longer and more realistic.
Is the calculator free?
Yes. No sign up. It runs in your browser, and you can copy the result or save it as a PDF.