Free tool · Money & pricing
Payback period calculator
The payback period is how long it takes for the cash an investment brings in to equal what you spent on it. Enter the investment and the monthly cash inflow — with optional monthly growth — to see the payback in months and a simple return on investment at one, three and five years.
Payback period
14.5 months
Includes the monthly growth you entered.
- Simple payback (no growth)
- 16.7 months
- Net return after 1 year
- −$4,882
- Net return after 3 years
- $52,992
- ROI after 3 years
- 212%
- ROI after 5 years
- 584%
Formulas
- Inflow in month k = Monthly inflow × (1 + Growth %)^(k − 1)
- Payback = first month where cumulative inflow ≥ Investment, interpolated within that month
- With no growth: Payback months = Investment ÷ Monthly inflow
- ROI at N years = (Cumulative inflow over 12N months − Investment) ÷ Investment × 100
Worked example: a second espresso machine
A café spends $12,000 on a second espresso machine and grinder, expecting $800 a month of extra profit from shorter queues.
With flat inflows, payback is $12,000 ÷ $800 = 15 months. ROI is −20% after one year, 140% after three and 300% after five.
If the extra sales grow 2% a month as regulars notice the shorter wait, payback shortens to about 13.2 months, and five-year ROI rises to roughly 660%. The growth input is powerful — use it cautiously.
What counts as monthly inflow
Use the extra cash the investment produces after its own running costs, not revenue. For a new van, that is the profit on the extra jobs it lets you take, minus fuel, insurance and maintenance. For software that saves time, it is the hours saved multiplied by what those hours are worth — only if you will actually use the time to earn more or spend less.
Limits of payback period
- It ignores the time value of money: $800 five years from now is worth less than $800 today. For large decisions, compare with net present value.
- It ignores what happens after payback, so a fast-paying investment that dies in month 16 can look better than a slower one that earns for a decade.
- It is still the quickest sanity check for small businesses, where cash is tight and a long payback ties up money you may need.
Frequently asked questions
How do you calculate the payback period?
Divide the initial investment by the cash it brings in per period. A $12,000 investment that returns $800 a month pays back in 15 months. If inflows change over time, add them up month by month until they reach the investment.
What is a good payback period for a small business?
Shorter is safer, but what is acceptable depends on how long the asset lasts and how much cash you have in reserve. An investment should comfortably pay back well within its useful life.
What is the difference between payback period and ROI?
Payback period measures how long it takes to get your money back. ROI measures how much you gain relative to what you invested over a chosen time frame.
Does payback period include financing costs?
Not automatically. If you borrow to fund the investment, subtract loan payments from the monthly inflow or use the business loan calculator to see the full cost.