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Definition

Payback is a simple calculation of the length of time taken to return the initial investment.[1]

Purpose

Payback—along with net present value and internal rate of return—is one of three metrics commonly used to evaluate return on investment over multiple periods. This simple return calculation favors projects with quick returns rather than long-term success.

Construction


      Payback (#) = Time (usually in years) required to generate the undiscounted cash flow to recover the initial investment

References

  1. ^ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; and David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (Second Edition). Upper Saddle River, New Jersey: Pearson Education, Inc. <http://www.amazon.com/Marketing-Metrics-Definitive-Measuring-Performance/dp/0137058292>


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