Payback Period Calculator
Enter what you invest and the cash it brings back, and see how long it takes to get your money back, with or without counting the time value of money.
What you pay at the start: the machine, the panels and fitting, the campaign budget.
Extra money in or money saved, after running costs.
How long it keeps bringing in cash.
One per line, or separated by commas, spaces or tabs (a column copied from a spreadsheet works).
The return you could get elsewhere, or what borrowing costs you.
For rising prices or savings. Monthly cash steps up once a year.
What you could sell it for when it is done. Added to the last cash flow.
The longest you are happy to wait to get your money back.
Cumulative cash flow: when it crosses zero
Cash flow table: running total each period
How your payback period is worked out
Keep a running total of the cash, starting at minus what you invest, and see when it reaches zero.
- 1
Start in the red
you put in−$25,000
- 2
Add each year's cash
+$6,000 a year4 years: −$1,000
- 3
Find the crossing
4 + 1,000 ÷ 6,000= 4.17 years
- 4
In today's money
at 8% a year= 5.28 years
Read more: the formula, worked examples, discounted payback and when payback misleads
The payback period is how long it takes for the cash an investment brings in to add up to what you paid for it. It is the simplest way to judge risk: the sooner you get your money back, the less can go wrong. It works for solar panels that cut a power bill, a machine that saves labour, a delivery van, new software or a marketing campaign that brings in extra sales.
The formula
equal cash flows: payback = initial investment ÷ cash in each year
uneven cash flows: payback = years before the last shortfall + shortfall ÷ next year's cash
running total = − initial investment + cash in so far
discounted payback: the same, with each cash flow ÷ (1 + rate)^years away
monthly rate = (1 + yearly rate)^(1 ÷ 12) − 1
NPV = sum of discounted cash flows − initial investment
profitability index = sum of discounted cash flows ÷ initial investment
Worked example
You invest $25,000 and it brings in $6,000 a year for 10 years. The cash is the same each year, so payback is $25,000 ÷ $6,000 = 4.17 years, about 4 years 2 months. Check with the running total: after 4 years you have $24,000 back and are $1,000 short; year 5 brings $6,000, so 4 + $1,000 ÷ $6,000 = 4.17 years.
Discounted payback at 8% a year: each year's $6,000 is worth less today.
| Year | Cash flow | ÷ 1.08^year | Running total |
|---|---|---|---|
| 0 | −$25,000 | −$25,000.00 | −$25,000.00 |
| 1 | $6,000 | $5,555.56 | −$19,444.44 |
| 2 | $6,000 | $5,144.03 | −$14,300.41 |
| 3 | $6,000 | $4,762.99 | −$9,537.42 |
| 4 | $6,000 | $4,410.18 | −$5,127.24 |
| 5 | $6,000 | $4,083.50 | −$1,043.74 |
| 6 | $6,000 | $3,781.02 | $2,737.28 |
After 5 years you are $1,043.74 short in today's money, and year 6 is worth $3,781.02, so discounted payback is 5 + $1,043.74 ÷ $3,781.02 = 5.28 years (about 5 years 3 months). Over all 10 years the discounted cash adds up to $6,000 × 6.7101 = $40,260.49, so the NPV is $15,260.49, the profitability index is 1.61 ($40,260.49 ÷ $25,000) and the IRR is 20.18% a year. Without discounting, it brings in $60,000 in total: a net gain of $35,000.
Example with uneven cash flows
A machine costs $100,000 and brings in $30,000, $35,000, $40,000, $30,000 and $20,000 over five years. The running total is −$70,000 after year 1 and −$35,000 after year 2. Year 3 brings $40,000, so payback is 2 + $35,000 ÷ $40,000 = 2.88 years (about 2 years 10½ months). At 10% a year the discounted running total is still $13,749.06 short after year 3, and year 4 is worth $20,490.40 today, so discounted payback is 3 + $13,749.06 ÷ $20,490.40 = 3.67 years.
Monthly cash flows
Pick Monthly for things that pay back in months, like a marketing campaign or a subscription tool. Payback is worked out in months, then shown in years and months. The yearly discount rate is turned into a monthly one by compounding: 8% a year is 1.08^(1 ÷ 12) − 1 = 0.643% a month, not 0.667%. When you switch between yearly and monthly, the amounts are converted for you (÷ 12 or × 12).
When payback misleads
- It ignores everything after break-even. A project that pays back in 3 years and then stops can look better than one that pays back in 4 years and earns for 20. Check the NPV and IRR as well.
- Plain payback ignores the time value of money. $6,000 in five years is worth less than $6,000 today. Discounted payback fixes this.
- The cash may dip again. A big repair or a second payment later can push the running total back below zero. The calculator uses the point after which it stays paid back, and tells you when it first broke even.
- Even cash within the year. The fraction of a year assumes the cash comes in evenly during that year. Use monthly flows if the timing matters.
The answer is only as good as your cash forecast. Use cash flows after running costs (and after tax if you pay it), and the same basis for the discount rate.
Common questions
How do you calculate the payback period?
If the cash comes in at the same amount each year, divide what you invest by the yearly cash: 25,000 ÷ 6,000 = 4.17 years, about 4 years 2 months. If the amounts differ, keep a running total starting at minus the investment, find the last year it is still below zero, then add the shortfall ÷ the next year’s cash.
How do you calculate payback with uneven cash flows?
Add the cash flows up year by year. For 100,000 invested and 30,000, 35,000, 40,000 back, you are 35,000 short after year 2. Year 3 brings 40,000, so payback is 2 + 35,000 ÷ 40,000 = 2.88 years. This assumes the cash comes in evenly during the year.
What is the discounted payback period?
It is the same running total, but each cash flow is first turned into today’s money by dividing by (1 + discount rate) for each year away. Because later cash is worth less, discounted payback is always longer. In the example above, 6,000 a year at 8% pays back 25,000 after 5.28 years instead of 4.17.
What is a good payback period?
There is no single rule. Many businesses want equipment or software to pay back within 2 to 5 years, and a marketing campaign within months. Shorter is less risky, but payback ignores everything after the break-even point, so look at NPV or IRR too before choosing between projects.
What if the investment never pays back?
If the running total is still below zero at the end of the cash flows, the calculator says so and shows how short you are. For equal cash flows it also shows how long it would take if the cash kept coming. In today’s money some projects never pay back at all: 1,000 a year at 12% is worth at most 8,333 today, so it can never repay 10,000.
Related calculators
Made by Zulu Calculator, part of AlphaZulu LLC. Formulas are shown in full and rule figures are checked against official sources; see how we build calculators.