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Payback period calculator

How long until the money comes back. Simple payback answers it literally; the discounted version answers it honestly, counting later dollars as worth less.

Leave at 0 for simple payback only. Enter your required return (8-10% is common, or whatever else that money could otherwise earn) to also see discounted payback, which prices in the time value of money.
Actually buying solar or a battery? The dedicated solar & battery calculator models self-consumption, export rates, battery efficiency, and degradation properly - this page's version is a simplified teaching example.
Why these starting numbers? The default cash flows are illustrative. Note that simple payback ignores the time value of money entirely, which is why the discounted figure is shown alongside it - and the default discount rate used for that is a round starting figure, not a recommendation.

What is the difference between simple and discounted payback?

Put in $10,000 and get back $3,000, $4,000, $4,000, and $3,000 over four years: the running total crosses zero partway through year 3, and interpolating within that year gives a simple payback of 2.75 years. Discount each cash flow at 10% first - because a dollar in year 3 is not worth a dollar today - and the honest answer stretches to 3.47 years. The gap between the two numbers is the cost of ignoring time.

What can payback not tell you?

Everything after breakeven is invisible to it. A project that repays in 2 years then stops, and one that repays in 3 then produces income for a decade, rank in the wrong order on payback alone. It is a fine measure of liquidity risk - how long your capital is exposed - and a poor measure of value. For value, the NPV & IRR calculator uses the whole cash-flow picture.

A worked example: Is solar actually worth it?

Load this exact scenario into the calculator above and follow along, or read it through first. Most solar payback calculators do one division: system cost divided by a flat annual savings figure. Put in $18,000 net (after incentives) with $2,000 a year in bill savings and that gives 9.00 years - and stops there. Two things are missing. First, electricity rates tend to rise, so a flat savings figure understates the case: escalate that $2,000 by 3% a year - a modest, realistic assumption - and the same system actually pays back in 8.08 years, because later years save more than the naive number assumed. Enter each year's expected saving separately above (row by row, rising each year) rather than one flat figure, and the calculator does this properly rather than assuming your savings never change.

Second, and this is the part almost no solar calculator does: that $18,000 was not doing nothing while it sat in a solar system. It could have been invested elsewhere. Set the discount rate to whatever that money could otherwise have earned - 7% is a reasonable stand-in for a diversified investment - and the honest, opportunity-cost-adjusted payback stretches to 11.72 years. That is not a worse answer, it is a more complete one: it is the number that actually answers "was this a better use of $18,000 than the alternative," which a flat 9.00-year figure never claimed to answer in the first place. Whether 11.72 years is still worth it depends on how long the system lasts past that point - most panels are warrantied for 20-25 years, so there is a long tail of free electricity on the other side of either payback number.

Common questions

What is the payback period?

It is how long it takes for the cash coming back from an investment to add up to what you originally put in. $10,000 in, $3,000 a year back, and the payback period is a little over 3 years - the point where cumulative returns finally cross the initial cost.

What is a good payback period?

It depends heavily on the type of investment - a few years is typical for equipment or a home improvement, while infrastructure or a business acquisition might reasonably run a decade or more. There is no universal target.

What is the difference between payback period and ROI?

Payback period answers how long until you get your money back; ROI answers how much you gained relative to what you put in. A project can have a fast payback and a mediocre total ROI, or a slow payback and an excellent one.

What is the difference between payback period and NPV or IRR?

Payback period ignores everything after breakeven. NPV and IRR use the entire cash-flow stream, which is why they are the better measure of total value - payback is better understood as a liquidity or risk-exposure measure.

How does this calculator handle cash flows that do not land in a clean number of years?

It interpolates within the breakeven year, assuming the cash for that year arrives evenly through it, rather than rounding up to the next full year.

Does a faster solar payback always mean a better deal?

Not necessarily. A fast payback calculated with a flat, unescalated savings figure can understate a system, since electricity prices tend to rise. A slower, opportunity-cost-adjusted payback is a more honest number, not a worse one.

For general information and education only. This tool shows an illustration based on the figures you enter - it does not know your circumstances, tax position, or appetite for risk, and nothing here is financial, investment, tax, or legal advice. It is not intended to be relied on when making a decision about any particular financial product. Before acting, check the figures against your own documents and consider advice from a licensed financial professional in your country.