Payback Period Calculator
How long until an investment earns back what you put in?
Payback Period Calculator
The Investment
Cash flow is net annual benefit — profit, savings, or revenue minus operating costs. Use a negative growth rate for equipment that earns less as it ages.
| Year | Cash Flow | Cumulative | Discounted Cum. |
|---|---|---|---|
| 1 | $25,000 | -$75,000 | -$76,852 |
| 2 | $25,000 | -$50,000 | -$55,418 |
| 3 | $25,000 | -$25,000 | -$35,573 |
| 4 | $25,000 | $0 | -$17,197 |
| 5 | $25,000 | $25,000 | -$182 |
| 6 | $25,000 | $50,000 | $15,572 |
| 7 | $25,000 | $75,000 | $30,159 |
| 8 | $25,000 | $100,000 | $43,666 |
| 9 | $25,000 | $125,000 | $56,172 |
| 10 | $25,000 | $150,000 | $67,752 |
| 11 | $25,000 | $175,000 | $78,474 |
| 12 | $25,000 | $200,000 | $88,402 |
| 13 | $25,000 | $225,000 | $97,594 |
| 14 | $25,000 | $250,000 | $106,106 |
| 15 | $25,000 | $275,000 | $113,987 |
Based on your results — what to do next:
Turn payback into a return percentage
Over 15 years this investment returns $275,000 on $100,000 (275%). Compare the annualized rate.
Is it worth more than the money today?
Discounted at 8%, your cash flows are worth $113,987 net of the $100,000 outlay.
What does this do to business value?
An extra $25,000/yr of cash flow can raise what a buyer would pay for your business — see by how much.
The payback period is the time it takes for an investment's cash flows to repay the original cost. Divide the initial investment by the yearly cash inflow — $100,000 returning $25,000 a year pays back in 4 years. This calculator also gives the discounted payback period, which accounts for the time value of money, plus cash-flow growth, total return, and net present value.
How Payback Period Is Calculated
Cash flows are accumulated year by year until the running total turns positive. The year it crosses zero is interpolated to give months, so payback is not rounded up to a whole year.
① Simple payback (even cash flows)
Payback = Initial investment ÷ Annual cash flow
$100,000 ÷ $25,000 = 4.0 years
② Uneven or growing cash flows
Payback = Y + (Unrecovered cost at end of year Y) ÷ (Cash flow in year Y+1)
Y is the last year the cumulative total is still negative.
③ Discounted payback
PV of cash flow = Cash flow ÷ (1 + d)t
Same formula as above, using discounted cash flows.
| Variable | Meaning | Typical Value |
|---|---|---|
| Initial investment | Up-front cost | Equipment, project, property down payment |
| Cash flow | Net annual benefit after operating costs | Profit, savings, or revenue |
| g | Annual cash-flow growth | 0–10%; negative for aging equipment |
| d | Discount rate | Your cost of capital or required return, 6–12% |
Worked Example — $100,000 investment, $25,000 per year, 8% discount rate
- Simple payback: 4 yr 0 mo
- Discounted payback: 5 yr 0 mo (about 5.01 years)
- 15-year net gain: $275,000 (275% total return)
- NPV at 8% over 15 years: $113,987
💡 Pro-Tip
Payback measures risk, not profit. It ignores everything after the break-even point, so a project paying back in 3 years but dying in year 4 can look better than one paying back in 5 years and earning for decades. Use payback as a quick screen for liquidity and risk, then confirm with NPV or IRR before committing.
Payback Period Calculator FAQ
What is a good payback period?
It depends on the industry and risk. Small businesses often want equipment to pay back in 2–3 years; rooftop solar commonly pays back in 6–10 years; real estate in 8–15 years. Shorter means less risk and faster cash recovery.
What is the difference between payback and discounted payback?
Simple payback treats a dollar in year 5 the same as a dollar today. Discounted payback shrinks future cash flows by your discount rate, so it is always longer and more realistic.
What are the limits of the payback period?
It ignores cash flows after break-even, ignores the project's total profitability, and the simple version ignores the time value of money. Pair it with NPV, IRR, or ROI.
How do I calculate payback with uneven cash flows?
Add cash flows year by year until the total reaches the investment, then divide the remaining shortfall by the next year's cash flow. Use the growth rate field to model steadily rising or falling cash flows.