Payback Period Calculator

Calculate simple and discounted payback period for business investments.

By Konstantin Iakovlev · Updated September 2026 · Source: SBA — Business Guide

$
Cash Flow Type
$/yr
%

Simple Payback

3.3 years

Discounted Payback

4.0 years

Profitability Index

2.95

Simple Payback Timeline

Initial Investment$100,000.00
Year 1$30,000.00 (cumulative: $30.0K)
Year 2$30,000.00 (cumulative: $60.0K)
Year 3$30,000.00 (cumulative: $90.0K)
Year 4$30,000.00 (cumulative: $120.0K)
Year 5$30,000.00 (cumulative: $150.0K)
Break-EvenYear 3.3

Investment Metrics

Net Present Value (NPV)$194,544.42
Profitability Index2.95
DecisionInvest (NPV > 0)

Use the Payback Period Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

How long before an investment earns back what you put into it? The payback period answers that by measuring the time it takes for incoming cash flow to recoup the original outlay. It is a go-to screen for judging whether a project holds up financially, whether you are weighing new equipment, a marketing push, or a fresh office lease.

There are two ways to run it. The simple payback period divides the initial investment by the annual cash inflow, giving you a quick first read. The discounted payback period goes further by applying the time value of money, discounting each future inflow at a chosen rate so the break-even point reflects today's dollars and paints a more honest picture. Both figures are interpolated within the year the investment is recovered. The calculator also reports net present value and a profitability index; with "Same each year" selected it assumes the inflow lasts 20 years, so enter flows year by year for a project with a shorter life.

Be aware of what the metric leaves out. It says nothing about the profit a project throws off once the original cost is back in your pocket, and it ignores how long the project keeps running after that. Leaning on simple payback alone is a frequent misstep, since it sidesteps both inflation and the cost of capital, factors that weigh heavily on longer-term investments.

Example: New Software Implementation

  1. 1 Input: A company invests $75,000 in new CRM software that is expected to save $25,000 a year. Discount rate: 8%.
  2. 2 Simple payback: $75,000 / $25,000 = 3.0 years.
  3. 3 Discounted payback: the savings are worth $23,148.15 in year 1 ($25,000 / 1.08), $21,433.47 in year 2 and $19,845.81 in year 3 in today's dollars, a cumulative $64,427.42. The remaining $10,572.58 is recovered part-way through year 4, whose savings are worth $18,375.75: $10,572.58 / $18,375.75 = 0.58, so the discounted payback is about 3.6 years.
  4. 4 With the savings entered as the same each year, the calculator assumes they run for 20 years and reports an NPV of $170,453.69 and a profitability index of 3.27. If the software will be replaced after five years, switch to custom yearly cash flows and enter $25,000 for five years: the NPV drops to $24,817.75 and the index to 1.33.

Source: SBA — Business Guide · Last updated: September 2026

Frequently Asked Questions

What is a payback period?
The payback period is the time it takes for an investment to recoup its initial cost from cash flows. If a $50,000 equipment purchase generates $15,000 in annual savings, the simple payback period is 3.3 years. Shorter payback periods indicate lower risk.
What is a good payback period for a business investment?
It depends on the industry and investment type. Generally, 3-5 years is acceptable for most business investments. Technology investments often require 1-3 years due to rapid obsolescence. Real estate and infrastructure may accept 7-10+ years. Many companies set a maximum payback period as a hurdle rate.
What is the difference between simple and discounted payback?
Simple payback ignores the time value of money. Discounted payback factors in a discount rate, making future cash flows worth less. Discounted payback is always longer than simple payback and gives a more accurate picture of when you truly recover your investment in real terms.

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