What is payback period?

Payback period is the time it takes for cumulative cash inflows to recover the initial investment or project cost.

What is discounted payback period?

Discounted payback reduces each future cash flow by a discount rate before accumulating it, so it accounts for the time value of money.

Is payback period the same as ROI?

No. Payback period measures recovery time. ROI measures return relative to investment cost over the period represented by your inputs.

Why can discounted payback fail to recover?

If discounted cash flows are too small relative to the investment and discount rate, cumulative present value may not reach the initial outlay within the horizon.

Payback Period Calculator

Estimate simple and discounted payback period from an initial investment, monthly cash flow, monthly costs, and an optional annual discount rate.

Preliminary estimate based on an average month. This is not an investment recommendation; include taxes, fees, debt service, and recurring obligations in monthly costs.

Initial investment, $

Monthly revenue / cash inflow, $

Cash inflow before costs; if you enter net cash flow, leave monthly costs at zero.

Monthly costs, $

Include taxes, processing fees, payroll, subscriptions, and other recurring payments.

Annual discount rate, %

Leave blank to show only the simple payback period.

Simple and discounted payback period

Use this calculator to estimate how long it takes for a project or investment to recover the initial cash outlay from an average monthly cash flow. English search intent expects both simple payback and discounted payback, so the page keeps both results visible when a discount rate is entered.

Screening metric only

Payback period is a liquidity and recovery-time metric. It does not replace NPV, IRR, tax planning, financing analysis, or professional investment advice.

Payback formulas

N e t M o n t h l y C a s h F l o w = M o n t h l y R e v e n u e - M o n t h l y C os t s

S im pl e P a y ba c k = ⌈ \frac{I ni t ia l I n v es t m e n t}{N e t M o n t h l y C a s h F l o w} ⌉

m = 1 \sum M \frac{C F}{( 1 + r ) ^{m}} \geq I ni t ia l I n v es t m e n t

M is the discounted payback month, CF is monthly cash flow, and r is the monthly discount rate.

For a $120,000 investment with $10,000 monthly net cash flow, simple payback is 12 months. A positive discount rate can make discounted payback longer or prevent recovery within the analysis horizon.

What to include

Initial investment, startup cost, equipment cost, or project outlay.
Monthly revenue or cash inflow before monthly costs.
Monthly costs such as rent, payroll, maintenance, taxes, fees, and operating expenses.
A discount rate that reflects time value of money, opportunity cost, and project risk when you want discounted payback.

Limits of payback period

The model uses one average month instead of irregular cash-flow rows.
It does not include taxes, debt service, terminal value, salvage value, or reinvestment unless you include them in cash flow.
It does not rank projects by value creation; use NPV or IRR for a fuller capital-budgeting view.
Shorter payback can still hide weak total return, high risk, or incomplete cost assumptions.

Frequently Asked Questions

Sources and References

Calculations are based on the listed reference sources. Links open in a new tab.

Updated: June 2, 2026

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