Payback Period Calculator

How payback period is calculated

Payback Period = Investment ÷ Monthly Return: the month in which the returns added up reach what you paid. The calculator assumes the same return every month and doesn't discount later months, which keeps it quick. Both assumptions are tested in the example below. Use profit, not sales, as the monthly return: the money left after the running costs the purchase adds.

Worked example: how sure is a 20-month payback?

The calculator opens on the espresso machine from the ROI, payback and depreciation guide: a café pays ₹2,40,000 and expects ₹12,000 a month in extra profit. 2,40,000 ÷ 12,000 = 20 months, shown as 1y 8mo. The guide covers what payback leaves out. This page asks how far the 20 months can move when the ₹12,000 turns out to be wrong, because it is a forecast:

The errors aren't symmetrical. A forecast 25% too high costs 4 months; one a third too low costs 10, because payback is cost divided by profit, and dividing by a smaller number grows faster. If you are unsure of the monthly figure, run the low case before deciding.

A slow start. New equipment rarely earns its full amount from the first month. Suppose the machine makes only ₹6,000 a month for the first 6 months while customers find it. That recovers ₹36,000, leaving ₹2,04,000; enter 204000 and 12000 and the calculator gives 17 months more, so payback is 23 months, not 20.

Waiting has a cost too. A rupee received in month 18 is worth less than one today. Discounting each month's ₹12,000 at 10% a year, the guide finds the machine pays back in 22 months instead of 20. The gap is small for a quick payback and grows with a long one.

Frequently Asked Questions