Payback Period Calculator
Free payback period calculator. Enter an initial investment and cash inflows to find how long it takes to recover your money, with the formula and example.
Updated 2026-06-14 · Free · No sign-up · Runs privately in your browser
Show the formula & steps
How the Payback Period Calculator Works
The payback period is how long it takes to earn back the money you put into an investment. Enter your initial investment and the cash inflow for each period, and the calculator adds up the inflows until they cover the cost, returning the exact payback period — including a fractional period when recovery happens partway through.
The Formula
For even (equal) cash flows:
Payback period = initial investment ÷ cash inflow per period
For uneven cash flows, accumulate inflows period by period until the cost is covered, then interpolate the partial period:
Payback period = number of full periods before recovery + (unrecovered cost at start of that period ÷ cash inflow during that period)
Worked Example
You invest $10,000 and receive $3,000 per year:
- After year 1: recovered $3,000, $7,000 remaining
- After year 2: recovered $6,000, $4,000 remaining
- After year 3: recovered $9,000, $1,000 remaining
- Year 4 brings $3,000; fraction needed = 1,000 ÷ 3,000 = 0.33
- Payback period = 3 + 0.33 = 3.33 years
| End of year | Inflow | Cumulative | Cost remaining |
|---|---|---|---|
| 1 | 3,000 | 3,000 | 7,000 |
| 2 | 3,000 | 6,000 | 4,000 |
| 3 | 3,000 | 9,000 | 1,000 |
| 4 | 3,000 | 12,000 | 0 (recovered at 3.33 yr) |
Even vs. Uneven Cash Flows
When every period brings the same inflow, you can divide directly: $10,000 ÷ $3,000 = 3.33 years. When inflows differ from period to period — common in real projects — you must track the running total and interpolate the partial period, which is exactly what this calculator does.
When to Use Payback Period
Payback is a fast, intuitive screen for liquidity and risk: projects that return capital quickly tie up less money and are exposed to less uncertainty. But it ignores cash flows after break-even and (in its simple form) the time value of money, so treat it as one signal among several. Pair it with net present value (NPV) and internal rate of return (IRR) before making a final investment decision.
Frequently asked questions
What is the payback period?+
The payback period is the length of time it takes for an investment's cumulative cash inflows to equal the initial amount invested. It answers the simple question: how long until I get my money back?
How do you calculate the payback period?+
For even cash flows, divide the initial investment by the cash inflow per period. For uneven cash flows, add up inflows period by period until the cost is recovered, then add the fraction of the final period needed: payback = full periods + (unrecovered cost / that period's inflow).
What is a good payback period?+
Shorter is generally better because you recover your capital sooner and face less risk. A good payback period depends on the industry and the asset's useful life, but many businesses set a target maximum payback for projects to be approved.
What is the difference between payback period and discounted payback period?+
The simple payback period ignores the time value of money and just sums the cash inflows. The discounted payback period first discounts each inflow to its present value, then measures recovery, so it is always longer (or equal) and is more conservative.
What are the drawbacks of the payback period?+
The payback period ignores any cash flows after the break-even point and, in its simple form, ignores the time value of money. It measures speed of recovery, not total profitability, so it should be used alongside NPV and IRR, not on its own.