Calculate how many years it takes to recover an investment from its cash flows
How it works
Measures how long an investment takes to return its own cost from cumulative cash flow. It is a liquidity and risk screen rather than a profitability measure, and it answers a question NPV does not: how long is my money exposed.
Payback = Years before recovery + (Unrecovered cost at start of year / Cash flow during that year)
Initial investmentupfront outflowCash flownet inflow in each periodCumulative cash flowrunning total used to find the crossover point
- End of year 1: cumulative 70,000
- End of year 2: cumulative 160,000, still 90,000 short
- Year 3 brings 95,000, so the shortfall clears partway through: 90,000 / 95,000 = 0.947
- Payback = 2 + 0.947
- Plain payback ignores the time value of money and everything that happens after break-even. A project paying back in 2 years then dying beats one paying back in 3 years and running a decade, which is obviously wrong. Pair it with NPV.
- Discounted payback applies the discount rate to each flow first and always gives a longer, more honest figure.
- The interpolation step assumes cash arrives evenly through the year. For seasonal businesses, work in months or quarters instead.
- In SaaS the same idea appears as CAC payback: CAC / (monthly ARPA × gross margin). Under 12 months is generally considered healthy for B2B.
Related Tools
Most Searched Today
Frequently Asked Questions
Yes. Payback Period costs nothing, needs no account, and runs right in your browser. There is no paywall, no watermark on the results, and no limit on how many times you can run the numbers.
Payback Period uses the standard formula for this kind of calculation, so the output is only as good as the figures you type in. Rates, fees, and rules in finance shift over time, and we review the underlying assumptions on a regular schedule; check the "Last reviewed" date above for the most recent pass. Spotted something off? There's a feedback button in the bottom-right corner.