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What is the payback period?
The payback period is the time it takes for an investment to return its cost from the cash it generates. A $50,000 investment that produces $6,000 of net cash a month pays back in 8.3 months. It is the simplest capital budgeting measure, and the one most operators use for equipment, software, inventory buys and marketing programs.
Simple vs discounted payback
Simple payback treats a dollar in month 12 the same as a dollar today. Discounted payback applies a rate (your cost of capital) to each month's inflow, which pushes the payback later. Set the discount rate in the advanced panel; 8% to 12% is typical for a small or mid-size business funded by a mix of equity and debt.
Modeling payback from unit sales
Switch to Units × margin when the investment is a product launch or inventory buy. The calculator takes units per month, price, variable cost and fixed costs and computes the monthly inflow itself, after payment fees, refunds and chargebacks.
Payment leakage lengthens payback by 20% on these inputs. Processing fees are most of it. Refunds cost the fee on the refunded sale, and each dispute costs the sale, the fee and a $15 dispute fee. The chargeback share is small per unit but compounds across every month of the payback window.
Uneven cash flows and ramp-up months
Most launches do not produce the same cash every month. Sales ramp, a seasonal peak lands, or a renovation month goes negative. The simple formula assumes a flat inflow, so use the cumulative method instead:
To model a ramp in the calculator, enter the average monthly inflow expected over the first year rather than the steady-state figure. A launch that reaches $6,000 a month only by month 4 might average $4,500 across 12 months, which pushes payback from 8.3 to 11.1 months.
CAC payback for subscription and repeat-purchase businesses
Payback also applies to each customer, not only to equipment or inventory. CAC payback is the months it takes a new customer's gross margin to repay what it cost to acquire them.
Stripe's guidance, last updated September 2024, calls 12 months or under healthy for SaaS and consumer subscriptions, with top SaaS businesses at five to seven months. B2B with annual contracts can run past 12 months.
A customer who disputes a renewal before payback is a pure loss: the acquisition spend, the refunded charge and the dispute fee. The CAC calculator in the related tools below works this per customer.
What is a good payback period?
Shorter is better, with one caveat: payback ignores everything after the payback point. A 6-month payback on something that stops producing in month 8 is worse than a 12-month payback on something that produces for five years. Use payback to screen, then check lifetime return.
Reading the cumulative cash-flow table
The table under the results starts at minus the investment and adds each month's inflow. The month the cumulative figure crosses zero is the payback month. Rows continue to month 12 or until payback, whichever is later, so you can see the first year even on fast paybacks.
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