Payback Period Calculator
Calculate the payback period for an investment using a constant annual cash inflow, or enter variable yearly inflows for a year-by-year breakdown.
$
$
Payback Period
4.17 years
How Payback Period Is Calculated
The payback period is the time it takes for an investment's cash inflows to equal its initial cost — a simple, non-discounted measure of how quickly you recover what you put in. Use constant mode if you expect the same cash inflow every year, or variable mode to enter a different inflow for each year.
Payback Period (variable) = Last full year before cumulative cash flow turns positive, plus the fraction of the next year needed to close the remaining gap
Example
A $50,000 investment generating a constant $12,000 per year has a payback period of 50,000 ÷ 12,000 ≈ 4.17 years. With variable inflows of $15,000 per year for four years, cumulative cash flow turns positive partway through year 4, giving a payback period of about 3.33 years.
Common Use Cases
- Comparing how quickly different projects recoup their initial cost.
- Screening capital investments for liquidity risk before deeper analysis.
- Setting a maximum acceptable payback period as an investment criterion.
- Communicating investment recovery time to stakeholders in simple terms.
FAQs
Why doesn't this account for the time value of money?
The simple payback period intentionally ignores discounting for ease of use. For a discounted view that accounts for the time value of money, use a discounted payback period or the Present Value Calculator alongside this tool.
What is a good payback period?
It depends on the industry and risk tolerance — many businesses target 2-4 years for equipment or smaller projects, while larger infrastructure investments may accept much longer payback windows.
What if cash inflows never recover the investment?
In variable mode, if cumulative cash flow never turns positive within the years you've entered, the calculator shows that the investment isn't recovered within that timeframe — add more years of inflows to see when (or if) it would be.