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How to Calculate CAC Payback Period
The payback period tells you how many months it takes to earn back the cost of acquiring a customer.
CAC / (ARPU x Margin)
Expert FAQ
Why is 12 months the benchmark for CAC Payback?
A 12-month payback ensures that you recover your investment within a year, maintaining healthy cash flow for reinvestment.
How does Gross Margin affect the Payback calculation?
Since you must pay for service costs, you only use Gross Profit (Revenue x Margin) to pay back the CAC, not top-line revenue.
What happens to Payback if churn is high?
If your Payback Period is longer than your average customer lifespan, you will lose money on every customer you acquire.
Can I have a 0-month Payback Period?
Yes, if your upfront setup fees or first-month revenue exceed the cost to acquire the customer.
Does Payback Period influence startup valuation?
Yes, investors view a short payback period as a sign of high 'Capital Efficiency,' leading to higher valuations.
