Frequently Asked Questions
How is CAC payback period calculated?
CAC Payback = CAC / (ARPU × Gross Margin). Example: $1,000 CAC / ($100 × 75%) = 13.3 months. Time to recover acquisition cost from gross profit. Different from LTV - payback is time-based, LTV is cumulative-profit-based.
What's a healthy CAC payback period?
SaaS benchmark: <12 months for SMB, <18 months for enterprise. Best-in-class: 5-8 months. Above 24 months signals capital inefficiency - you need 2+ years of customer revenue to break even.
How is payback period different from LTV:CAC?
LTV:CAC measures lifetime profitability (3:1 healthy). Payback measures time to recoup investment. A high LTV:CAC with long payback (>24mo) means you make money eventually but tie up capital. Both matter - payback drives capital efficiency, LTV:CAC drives profitability.
What is the CAC payback period?
It is the number of months a new customer takes to generate enough gross contribution (revenue times gross margin) to match the cost of acquiring them. It is the cash-flow metric of growth: it tells you whether you can fund expansion internally or need outside capital.
Why use gross margin instead of revenue?
Because gross revenue includes the cost of serving the customer. If your gross margin is 70%, every $100 of revenue only leaves you $70 of real contribution. Using gross revenue overstates payback speed by 30% or more.
How do annual contracts affect the payback period?
A prepaid annual contract can make payback effectively instant: if the customer pays $1,200 up front and CAC is $800, you recover it on day one. That is why many SaaS companies offer 15-20% discounts for annual payment; the cash-flow benefit outweighs the discount.
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Business Information Disclaimer: Estimates only. Not professional business advice.
This calculator provides estimates for informational purposes only. Business results vary by industry, market conditions, and execution. Not a substitute for professional business consulting, accounting, or legal advice. Consult qualified professionals before making business decisions.