Acquisition & ConversionPayback Period

CAC Payback Period

CAC payback period measures how many months it takes to recover the cost of acquiring a customer through their recurring revenue.

Key Takeaways
  • Payback period is the number of months required for gross profit from a customer to equal the customer acquisition cost (CAC).
  • Common Mistakes:
  • Not including gross margin in the calculation (using revenue instead of profit).
  • Ignoring expansion revenue that shortens actual payback.
  • Comparing payback across segments with very different retention rates.
  • Using blended CAC instead of cohort-specific CAC.
  • Not accounting for voluntary vs involuntary churn in payback estimates.
  • Forgetting to update payback calculations when CAC or ARPA changes.

Definition

Payback period is the number of months required for gross profit from a customer to equal the customer acquisition cost (CAC).

Short payback (<12 months)

Efficient acquisition; fast return on investment.

Medium payback (12-24 months)

Typical for many SaaS businesses.

Long payback (>24 months)

High CAC or low ARPA; cash flow concerns.

Formula

Payback Period (months) = CAC / (ARPA × Gross Margin %)

Variables

CAC

Customer acquisition cost.

ARPA

Average revenue per account per month.

Gross Margin %

Gross profit margin percentage.

Examples

Payback period calculation

MetricValue
CAC$1,200
Monthly ARPA$100
Gross margin80%
  1. 1Monthly gross profit per customer = $100 × 80% = $80
  2. 2Payback period = $1,200 / $80 = 15 months
→ Payback period = 15 months

Track in Daymark

Data Sources

CSVgoogle sheetspostgreSQL

Required Fields

Customer economics
  • customer_id
  • acquisition_date
  • cac
  • monthly_revenue

Sample Questions

  • What is our current CAC payback period?
  • Show payback period trend over time
  • Calculate payback by customer segment or acquisition channel
  • What percentage of customers have paid back within 12 months?
  • Compare payback period to industry benchmarks
  • Show payback distribution across all customers
  • Forecast payback improvement if we reduce CAC 20%
Calculate payback

Dashboard Template

1. line
Payback period trend

Average payback by cohort

2. histogram
Payback distribution

How payback varies

3. bar
Payback by segment

Compare across customer types

4. scatter
Payback vs LTV

Unit economics view

Common Mistakes

  • •Not including gross margin in the calculation (using revenue instead of profit).
  • •Ignoring expansion revenue that shortens actual payback.
  • •Comparing payback across segments with very different retention rates.
  • •Using blended CAC instead of cohort-specific CAC.
  • •Not accounting for voluntary vs involuntary churn in payback estimates.
  • •Forgetting to update payback calculations when CAC or ARPA changes.

FAQ

Q: What's a good payback period?

Most investors look for payback under 12 months. Under 18 months is acceptable; over 24 months raises red flags.

Q: Why include gross margin in payback calculation?

Because only gross profit pays back CAC, not total revenue. A portion goes to COGS.

Q: How does payback relate to cash flow?

Shorter payback means faster cash recovery, enabling reinvestment in growth sooner.

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