How to use it
- Use the formula below with your own figures.
The formula
Payback = investment ÷ yearly cash flow.
Worked example
A $30,000 project returning $10,000/year pays back in 3 years.
Frequently asked questions
Shorter better?
Usually — it means faster recovery.
Any limit?
It ignores cash flows after payback.
Tips
- Know your break-even before scaling spend.
- Separate margin from markup when pricing.
- Discount future cash flows to value projects.
Key terms
- Break-even
- Where revenue covers costs.
- Margin
- Profit as a percent of price.
- NPV
- Discounted value of future cash flows.