Payback Period Calculator

How many years until an investment pays for itself, with even or uneven cash flows

Updated 2026-10-11

Initial investment

Cash flow or savings per year

Years of cash flow

Discount rate (for discounted payback)

Uneven cash flows? Enter one per year (overrides the two fields above)

Payback period: 3.13 years (3 yr 2 mo)
Discounted payback at 8.00%: 3.75 years (3 yr 9 mo)
Total cash returned: $40,000.00
Net gain after payback: $15,000.00
ROI over the period: 60.0%
Net present value: $6,941.68

Payback = years until cumulative cash flow equals the investment; the final part-year is interpolated. Discounted payback divides each year's cash flow by (1 + rate)^year first (NIST Handbook 135). Payback ignores cash after the break-even year, so read it with NPV.

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Cumulative position after each year (negative = not yet paid back)
Year	Cash flow	Cumulative	Discounted cumulative
1	$8,000.00	-$17,000.00	-$17,592.59
2	$8,000.00	-$9,000.00	-$10,733.88
3	$8,000.00	-$1,000.00	-$4,383.22
4	$8,000.00	$7,000.00	$1,497.01
5	$8,000.00	$15,000.00	$6,941.68

The payback period is how long an investment takes to earn back what it cost. Divide the investment by the cash it brings in each year: a $25,000 machine that saves $8,000 a year pays back in 25,000 ÷ 8,000 = 3.13 years, about 3 years and 2 months. Enter uneven yearly amounts if the savings ramp up, and set a discount rate to see the discounted payback, which counts later dollars for less. Nothing is stored or sent.

The payback period formula

With the same cash flow every year, payback period = initial investment ÷ annual cash flow. With uneven cash flows, add the years up until the running total reaches the investment, then take the part-year as the amount still needed ÷ that year's cash flow.

Worked example with uneven flows: a $25,000 project returns $6,000, $8,000, $9,000, $9,000 and $9,000. After three years $23,000 has come back, so $2,000 is still needed. Year four brings $9,000, and 2,000 ÷ 9,000 = 0.22, so the payback period is 3.22 years, about 3 years and 3 months.

Discounted payback period

Simple payback treats a dollar in year five the same as a dollar today. Discounted payback first divides each year's cash flow by (1 + rate)^year, then runs the same count. NIST Handbook 135, the federal life-cycle costing manual, defines both and recommends the discounted version when money has a real cost.

At an 8% discount rate the even $8,000-a-year example becomes $7,407, $6,859, $6,351, $5,880 and $5,445 in today's dollars. The running total passes $25,000 in year four, giving a discounted payback of 3.75 years, about 3 years and 9 months, seven months longer than the simple figure.

$25,000 investment, $8,000 a year for 5 years, 8% discount rate
Year	Cash flow	Cumulative	Discounted value	Discounted cumulative
1	$8,000	−$17,000	$7,407	−$17,593
2	$8,000	−$9,000	$6,859	−$10,734
3	$8,000	−$1,000	$6,351	−$4,383
4	$8,000	$7,000	$5,880	$1,497
5	$8,000	$15,000	$5,445	$6,942

What payback does not tell you

Payback is a risk measure: the shorter it is, the sooner your cash is safe. It ignores everything that happens after the break-even year, so two projects with a 3-year payback can be very different if one keeps paying for ten years and the other stops in year four. That is why the calculator also shows total return, ROI and net present value (NPV).

Use cash flow, not accounting profit: add back depreciation and count only money that actually comes in or is saved.
Include the running costs the investment brings, such as maintenance, software fees or extra energy.
Set a maximum payback before you compare options. Many small businesses use 2 to 3 years for equipment.
For energy upgrades, use the yearly saving on your bills as the cash flow.

Frequently asked questions

How do you calculate the payback period?

Divide the initial investment by the yearly cash flow. $25,000 ÷ $8,000 a year = 3.13 years. With uneven cash flows, count the full years until the total reaches the investment, then add the remaining amount ÷ the next year's cash flow.

What is a good payback period?

Shorter is safer. Many small businesses want equipment to pay back within 2 to 3 years. Longer-lived assets such as solar panels or buildings can justify 7 to 10 years, but check the NPV as well.

What is the difference between payback and discounted payback?

Discounted payback reduces each future cash flow by a discount rate before counting, so it is always longer. In the example, 3.13 years becomes 3.75 years at 8%.

Is payback period the same as break-even?

They are related. Break-even usually means the sales volume where profit is zero in one period. Payback is the time until cumulative cash flow repays an upfront investment.

What discount rate should I use?

Use your cost of borrowing or the return you could earn elsewhere. Small businesses often use 8% to 12%.

Why does the calculator say payback is not reached?

The cash flows you entered add up to less than the investment. Add more years or check the amounts.

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