CAC, payback period and ROI by cohort

Theo

Paid social is our cheapest way to buy users: about 95 cents each. For the summer I want to triple its budget. Will you back me at Friday's budget meeting?

Alex Tutor

Before "how much", ask "how soon". Every dollar you spend buys a cohort of users. The meeting needs one answer: how many months until that cohort's gross profit has paid the dollar back?

You

So we follow each bought cohort as it ages, not the channel as a whole.

Alex Tutor

Yes, with three numbers. CAC is the spend per user it bought. Cohort ROI is always stated at an age: "ROI at month 3". The payback period is the first age at which the cohort's cumulative gross profit covers its spend.

Alex Tutor

\text{CAC} = \frac{\text{spend}}{\text{new users}} \qquad \text{ROI}_{m} = \frac{\text{cumulative gross profit}_{m} - \text{spend}}{\text{spend}}

Payback period: the first month m when cumulative gross profit ≥ spend.

Alex Tutor

Dataset · 12 rows

Paid cohorts, January–June 2026

One row per sign-up month and paid channel; cumulative gross profit by month since sign-up.

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Columns
cohort: Sign-up month
channel: Paid channel
new_users: Users the channel brought that month
spend_usd: Ad spend that month, USD
gp_cum_m0: Cumulative gross profit of the cohort by month 0, USD
gp_cum_m1: … by month 1
gp_cum_m2: … by month 2
gp_cum_m3: … by month 3
gp_cum_m4: … by month 4
gp_cum_m5: … by month 5 (empty: the cohort isn't that old yet)

Data

cohort	channel	new_users	spend_usd	gp_cum_m0	gp_cum_m1	gp_cum_m2	gp_cum_m3	gp_cum_m4	gp_cum_m5
2026-01	paid_social	1112	1048.70	369.25	559.33	719.03	855.57	984.13	1100.72
2026-01	store_search_ads	570	892.60	305.30	482.61	635.93	772.47	907.41	1036.77
2026-02	paid_social	1168	1112.55	402.82	626.47	815.75	969.05	1110.39
2026-02	store_search_ads	621	971.71	329.30	513.00	691.90	838.02	982.55
2026-03	paid_social	1270	1199.91	433.19	704.02	903.69	1062.59

Show 7 more rows

2026-03	store_search_ads	649	993.55	369.25	593.72	788.60	949.90
2026-04	paid_social	1313	1238.41	615.55	923.16	1154.81
2026-04	store_search_ads	683	1047.51	479.66	727.33	943.01
2026-05	paid_social	1478	1414.55	703.49	1075.03
2026-05	store_search_ads	691	1094.73	523.62	783.27
2026-06	paid_social	2352	2785.11	967.30
2026-06	store_search_ads	774	1176.37	567.59

Alex Tutor

Walk one row before comparing anything. January, store search ads: $892.60 bought 570 users.

You

Month 0 brings back $305.30, about a third. By month 3 it's $772.47, still 13% short. Month 4: $907.41, just past the $892.60.

Alex Tutor

So it paid back at month 4, the cohort's fifth month of life, and by month 5 it's at +16%. Keep the month_since_signup numbers from the column names; they avoid off-by-one arguments.

Alex Tutor

Question 1

What was the CAC of the January 2026 store-search-ads cohort? Round to cents.

Your answer

Units: USD, e.g. 1.25

Theo

Store search users cost two-thirds more. Paid social has to be the better deal.

Alex Tutor

Compare the channels at the same age. Take January's paid-social row at month 4.

Alex Tutor

Question 2

What was the cohort ROI at month 4 of the January 2026 paid-social cohort? Give a percentage; negative means a loss so far.

Your answer

Units: %, e.g. -12.5 for a loss

You

February gives the same picture. At month 4 both store-search cohorts have paid back, while February's paid social is still $2.16 short.

Alex Tutor

People who search the store for a bill-splitting app arrive with a need, and more of them subscribe. The low CAC is half of the story; how fast users pay it back is the other half.

Alex Tutor

Question 3

Compare the January and February 2026 paid cohorts at month 4. Which statement does the data support?

Choose one answerPaid social is the better buy because its CAC is about 40% lowerNeither channel has paid back any cohort by month 4Both store-search cohorts had paid back by month 4; neither paid-social cohort hadStore-search users are worth less because each one costs more

Maya

The April cohorts look far better: paid social is at −7% at month 2, January was at −31%. Did Theo's new ads work?

Alex Tutor

Since 1 April new subscribers pay $4.99 instead of $3.99, so April users earn more per head even with the same ads. Compare at the same age and under the same prices: March is the latest old-price cohort with a month-3 number.

Alex Tutor

Question 4

What was the cohort ROI at month 3 of the March 2026 paid-social cohort? Give a percentage; negative means a loss so far.

Your answer

Units: %, e.g. -12.5 for a loss

Theo

My monthly report has a stronger argument anyway. In May paid social cost $1,414.55 and returned $2,454.89 of gross profit: +74%.

Alex Tutor

Dataset · 12 rows

Paid channels by calendar month, January–June 2026

Theo's view: each month's spend next to that month's gross profit from all of the channel's users.

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Columns
month: Calendar month
channel: paid_social or store_search_ads (search ads inside the app stores)
spend_usd: Ad spend in the month, USD
gross_profit_usd: Gross profit in the month from all users the channel ever brought, USD

Data

month	channel	spend_usd	gross_profit_usd
2026-01	paid_social	1048.70	1389.75
2026-01	store_search_ads	892.60	1311.31
2026-02	paid_social	1112.55	1536.71
2026-02	store_search_ads	971.71	1461.45
2026-03	paid_social	1199.91	1714.01

Show 7 more rows

2026-03	store_search_ads	993.55	1670.70
2026-04	paid_social	1238.41	2169.69
2026-04	store_search_ads	1047.51	2090.33
2026-05	paid_social	1414.55	2454.89
2026-05	store_search_ads	1094.73	2338.73
2026-06	paid_social	2785.11	2971.95
2026-06	store_search_ads	1176.37	2569.56

Where does the $2,454.89 come from? From every user paid social has ever brought, back to January 2025. May's own cohort is at −24% after month 1.

You

So a calendar month mixes old cohorts' income with this month's spend. It flatters any channel that has been running for a while.

Alex Tutor

Question 5

Why doesn't "May gross profit ÷ May spend" tell you whether May's paid-social spend paid off? Select all that apply.

Choose all that applyIt includes gross profit from users acquired in earlier monthsThe users May's spend bought have had at most one month to payIt should use revenue instead of gross profitCutting spend would raise it even if new cohorts got worseStore search ads show a higher calendar ROI, so they are the better channel

One more line matters for tripling. In June, when paid-social spend almost doubled to $2,785.11, CAC jumped from $0.96 to $1.18. The next users are dearer than the last.

Theo

So what do I bring on Friday?

Alex Tutor

Cohort numbers with their age: CAC, payback month, ROI at a stated month. Then what tripling would do to CAC, and what we don't know yet.

Alex Tutor

Question 6Short answer · AI-checked task

Reply to Theo in 3–5 sentences: should Halves triple paid-social spend for the summer? Use cohort numbers with their age.

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The rule: spend buys a cohort, so judge it by that cohort at a stated age. A calendar month is a mix of ages and says little about any of them.

Alex Tutor

That’s the lesson. You answered every task — nicely done.

Next lesson: Case: price or paywall?