Finance 2026-05-03 4 min read By Konvertibly Team

Payback Period Calculator: How Long Until Your Investment Pays for Itself?

Calculate simple and discounted payback periods for business investments, understand when to use each, and see how payback period fits alongside NPV and IRR.

Payback Period: When Does Your Investment Break Even?

The payback period is the length of time required to recover the initial cost of an investment from its cash inflows. It is the most intuitive capital budgeting metric — and deliberately simple. A shorter payback period means less risk.

Simple Payback Period

Payback period = Initial investment ÷ Annual cash inflow
(for equal annual inflows)

Example: £24,000 investment, £6,000/year inflow:
Payback = 24,000 ÷ 6,000 = 4 years

Unequal Cash Flows

Accumulate cash flows year by year until the cumulative total equals the investment:

Year 1: £5,000 | Year 2: £7,000 | Year 3: £8,000 | Year 4: £6,000
Investment: £18,000
Cumulative: 5k → 12k → 20k → payback occurs in Year 3
Exact: 2 years + (18,000−12,000)÷8,000 = 2.75 years

Discounted Payback Period

Discount each year's cash flow to present value before accumulating. This accounts for the time value of money — a £6,000 inflow in year 4 is worth less than £6,000 today. Discounted payback is always longer than simple payback.

Limitations

Ignores cash flows after payback — a 3-year payback project might earn for 20 years
Simple version ignores time value of money
Best used as a quick risk screen, not a standalone decision tool

Calculate payback period: Free Payback Period Calculator