Payback Period Calculator
When an investment earns itself back — the simple figure and the discounted one, with even or uneven cash flows, and the cumulative curve drawn so you can see how close the crossing is.
Free · No signup · Runs entirely in your browser
Payback period is when cumulative cash flow finally turns positive. This payback period calculator gives both the simple figure and the discounted one, which is always later because money arriving in year four is worth less than money arriving now.
What you put in up front.
What it returns each year. Switch below for uneven years.
For the discounted figure. Your cost of capital.
The horizon. Past it, the answer is "it does not".
Discounting at 10% adds 6 months to the wait. That gap is the cost of capital showing up as time rather than as a charge.
Payback tells you when the money comes back, not whether the bet was right. If you are building the product largely on your own, Tekk turns what you want into specs your coding agent can actually execute.
The formula
When every year returns the same amount, it is one division:
payback period = initial investment ÷ annual cash flow
When the years differ — which is most of the time — it becomes:
payback period = years before break-even
+ (unrecovered amount ÷ cash flow in the recovery year)
That second term is the one people leave out, and it is the difference between an answer and a range.
Worked example
$100,000 invested, returning $40,000 a year:
| Year | Cash flow | Cumulative |
|---|---|---|
| 0 | −$100,000 | −$100,000 |
| 1 | $40,000 | −$60,000 |
| 2 | $40,000 | −$20,000 |
| 3 | $40,000 | $20,000 |
The crossing happens inside year three. Two full years passed, and $20,000 of the $40,000 that year was needed to finish: 2 + (20,000 ÷ 40,000) = 2.5 years.
Payback is scale-invariant, so $10m returning $4m a year gives exactly the same answer.
The discounted version
Discounting each year's cash flow before adding it up asks a harder question: when does the investment pay back in money worth what today's money is worth?
| Year | Cash flow | At 10% | Discounted cumulative |
|---|---|---|---|
| 1 | $40,000 | $36,364 | −$63,636 |
| 2 | $40,000 | $33,058 | −$30,579 |
| 3 | $40,000 | $30,053 | −$526 |
| 4 | $40,000 | $27,321 | $26,795 |
The same investment now pays back at 3.02 years rather than 2.5. That extra six months is the cost of capital, showing up as time rather than as a charge on the page.
Note how close year three comes — $526 short. Small changes in the discount rate move that crossing a long way when the curve is this flat near zero, which is a good reason to check the answer at more than one rate.
What payback does not tell you
It stops caring the moment the money is back.
An investment that returns its cost in two years and then produces nothing scores better on payback than one that takes three years and then runs profitably for a decade. Payback measures how long your money is exposed, which is a genuine risk question, but it is not a measure of whether the investment is worth making. For that you need NPV or IRR, which weigh everything that happens after the crossing.
Use payback as a screen — anything past a threshold gets rejected without further discussion — rather than as the thing you rank surviving options by.
How it works
- 1
Enter what goes out and what comes back
The initial investment, the cash it returns each year, and how long you are willing to consider. The payback period calculator runs a cumulative total and finds where it crosses zero, interpolating inside the year that gets it there rather than rounding to a whole one.
- 2
Set a discount rate for the honest version
Money arriving in year four is worth less than money arriving now. The payback period formula ignores that; the discounted variant does not, which is why the second figure is always the later of the two. Use your cost of capital, or the return you would get from the next best use of the money.
- 3
Switch to uneven years if the ramp is real
Few investments return the same amount every year. The toggle below the inputs opens a field per year, so a slow first year and a strong third are modelled as they actually happen instead of averaged into a straight line.
Frequently asked questions
- How do you calculate the payback period?
- Divide the initial investment by the annual cash flow when the cash flow is even: $100,000 returning $40,000 a year pays back in 2.5 years. When it is uneven, count the whole years before the cumulative total turns positive and add the fraction of the next year needed to finish the job.
- What is the payback period formula?
- Years before break-even, plus the unrecovered amount divided by the cash flow in the recovery year. That second term is the part people drop, and it is the difference between "sometime in year three" and 2.5 years. This calculator applies the full payback period formula, including the fractional part.
- What is a discounted payback period calculator?
- One that discounts each year's cash flow to present value before adding it up. A discounted payback period calculator always returns a later date than the simple version, because a dollar in year four is worth less than a dollar today. At $100,000 in, $40,000 a year and a 10% discount rate, payback moves from 2.5 years to just over 3.
- Which figure should I use?
- The discounted one for a decision, the simple one for a conversation. The payback period calculator shows both for that reason. Simple payback is easier to explain and fine for comparing two options of similar length; once the horizon runs past a couple of years, ignoring the time value of money quietly flatters the investment.
- What is a good payback period?
- It depends entirely on what is being bought and how certain the cash flows are. Software and process investments are often expected to pay back inside 12–24 months; capital equipment is judged over years. The useful comparison is against the alternative uses of the same money, not against a universal threshold.
- What discount rate should I use?
- Your weighted average cost of capital if you have one, otherwise the return you would get from the next best use of the money. Early-stage companies often use something high — 15–25% — to reflect that capital is scarce and risky. The rate matters less than being consistent across the options you are comparing.
- What are the limitations of the payback period?
- It ignores everything after the payback date. An investment paying back in two years and then stopping scores better than one paying back in three and running for a decade, which is plainly wrong. Payback measures how long your money is at risk, not whether the investment is worth making — that is what NPV and IRR are for.
- What is the difference between payback period and break-even?
- Payback is about time: when does the money come back. Break-even is about volume: how many units cover the fixed costs. They answer different questions and are often confused because both describe a crossing point. A project can break even on unit economics while still being years from paying back the investment that started it.
- Can the payback period be infinite?
- In effect, yes — if the cumulative cash flow never turns positive within the horizon, there is no payback period, and this payback period calculator says so rather than inventing a number. That also happens on the discounted figure alone, when returns are positive but never outrun the cost of capital.
- How do I handle a year with negative cash flow?
- Enter it as a negative number in uneven mode. The running total handles it correctly — a bad year pushes the crossing later and can move it past a year that had already looked close. This is exactly the case a simple division cannot represent.
- Does this work for CAC payback?
- Yes. Treat the acquisition cost as the initial investment and the monthly gross profit per customer as the cash flow, then read the answer in months rather than years. The arithmetic is identical; only the units and the horizon change.
- Do you store the numbers I enter?
- No. The calculation runs entirely in your browser. Nothing is sent to a server, nothing is logged, and there is no account. Disconnect from the internet and it will still work.
- Why is this free, and what is Tekk?
- Tekk is a spec-driven development platform for people building software with AI coding agents. This calculator costs us nothing to run, and the founders sizing an investment are often the same people building the product. No signup, no run limit, no upsell inside the tool.
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