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Payback period calculator: months until an investment pays back
Enter the upfront cost, the yearly saving and the yearly running cost. You get the payback time and the return over the horizon you set.
Payback period is the upfront investment divided by the net yearly benefit. At the default numbers it is 2.7 years, or 32 months.
Written by Procurement VMS Editorial Team · Reviewed by Michael, Procurement Advisor Expert · Updated
Your numbers
The boxes start with an example so you can see how it works. Replace them with your own figures.
Your result
The investment pays back in about 32 months. Over 3 years the net gain is USD 15,000, a return of 13% on the money you put in.
| Net benefit per year | USD 45,000 |
|---|---|
| Payback period | 2.7 years |
| Payback period in months | 32 months |
| Return over the horizon | 13% |
| Net gain over the horizon | USD 15,000 |
The currency box changes the label only. Enter amounts in the currency you choose.
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How the payback period calculator works
The formula
Payback = investment / (yearly saving - yearly running cost). Return over the horizon = (net yearly benefit x years - investment) / investment.
Payback is the simplest test of an investment: how long until you have your money back. Finance teams use it as a first screen because it is easy to explain, and then look at more detailed measures for the projects that pass.
It ignores what happens after payback and the time value of money. A project that pays back in two years then stops saving is worse than one that pays back in three and saves for ten. Use the horizon return alongside it.
The example numbers are illustrative and are not benchmarks. Use your own data for any decision.
How to use it with your own data
- Put every upfront cost in, including implementation and training.
- Use savings you can verify, such as measured hours, price cuts agreed in writing or avoided fees.
- Include all the yearly costs of running the thing, so the net figure is realistic.
Mistakes that skew the answer
Counting savings that never show up in a budget
Time saved only counts when the time is used for something else or a cost is removed.
Leaving out running cost
Licences, support and upkeep eat into the benefit every year.
Treating payback as the whole case
Use it to screen, then look at total cost of ownership and the benefit after payback.
What to do with the result
For software, put the same inputs in the procurement ROI calculator. For equipment or a capital purchase, build the full cost in the total cost of ownership calculator, and keep the approved case in your cost savings tracker.
Questions about the payback period calculator
What is a good payback period?
It depends on the risk and on your company policy. Many firms look for under two or three years on a purchase of this kind.
How is payback different from ROI?
Payback is the time to recover the money. Return on investment is the profit as a share of the money invested over a period.
Should I discount the cash flows?
For larger or longer projects, yes. The discounted payback uses present values. This calculator uses simple payback.
Does it work for software?
Yes. Include subscription and implementation costs, and the savings in time or fees that you can measure.