CAC Payback Period Calculator

Simple payback is CAC divided by the gross profit a customer brings each month: $600 ÷ $80 = 7.5 months. It is the usual definition and the one to compare with other companies.

It quietly assumes the customer stays. With churn, some customers leave before paying back, so the expected profit of a new customer grows more slowly. The payback with churn is the first month in which that expected profit reaches CAC: month 9 in the example. If the expected lifetime profit never reaches CAC, the customer is never paid back on average, however short the simple payback looks.

With annual billing paid upfront, recovery happens at the payments: a $1,200 annual plan at 80% margin brings $960 at once, which covers a $600 CAC with the first payment.

CAC is $600. Each customer brings $80 of gross profit a month (ARPA $100 at 80% margin), and 3% of customers cancel monthly.

Simple payback: 600 ÷ 80 = 7.5 months. With churn, the expected profit of a new customer is $576.68 after 8 months and $639.38 after 9, so the cost is recovered in month 9.

With a CAC of $3,000 the simple payback is 37.5 months, but the whole expected lifetime profit is only $2,666.67: on average this customer never pays back.

Churn is first converted to the billing period by compounding: 3% a month is 1 − 0.97¹² = 30.6% a year, not 36%. The calculator never multiplies or divides churn by 12.

c_year = 1 − (1 − c_month)^12      c_month = 1 − (1 − c_year)^(1/12)
gross profit g = ARPA × margin
LTV = g ÷ c                        (capped: g × (1 − (1 − c)^H) ÷ c)
CAC = (paid media + other costs) ÷ new paying customers
LTV:CAC = LTV ÷ CAC
payback = CAC ÷ monthly g
payback with churn = first month t with g × (1 − (1 − c)^t) ÷ c ≥ CAC

LTV assumes a constant churn rate and that a customer pays at the start of each period while still active, so the expected number of payments is 1 ÷ churn. LTV uses gross profit (revenue × margin), because margin is what pays back the acquisition cost; revenue LTV is shown on the side.

With a lifetime cap of H periods, LTV = gross profit × (1 − (1 − churn)^H) ÷ churn. At 0% churn there is no finite LTV without a cap.

CAC is blended: all sales and marketing costs of a period divided by all new paying customers of that period. Simple payback is CAC ÷ monthly gross profit. Payback with churn is the first month in which the expected cumulative gross profit of a new customer reaches CAC; with annual billing it is counted in annual payments.

How do you calculate the CAC payback period?

Divide CAC by the monthly gross profit per customer (ARPA × gross margin). With a $600 CAC, $100 ARPA and 80% margin: 600 ÷ 80 = 7.5 months.

Why does churn make payback longer?

Simple payback counts the profit of a customer who stays. Some customers leave early, so the expected profit of a new customer grows more slowly than that. At 3% monthly churn the example recovers in month 9 instead of 7.5 months, and when lifetime profit is below CAC it never recovers.

What is a good CAC payback period?

Many subscription businesses aim for about 12 months or less; businesses selling to larger customers often accept longer because those customers stay longer. This is a rule of thumb, not a standard: the right limit depends on how much cash you have and how reliable your churn is.

How does annual prepayment change payback?

An annual plan paid upfront brings a year of gross profit on day one, so a CAC below one year of gross profit is recovered immediately. The simple payback in months stays the same, which is why the calculator shows both.

Payback or LTV:CAC: which one to watch?

Both. LTV:CAC says whether acquisition is worth it over a customer's life; payback says how long your cash is tied up. A 5 : 1 ratio with a 36-month payback can still run a young company out of money.

• payback period
• CAC (customer acquisition cost)
• CAC
• LTV (customer lifetime value)
• churn

• CAC calculator

  What it costs to win one paying customer.

• LTV calculator and LTV:CAC ratio

  Customer lifetime value and the LTV:CAC ratio.

• Churn rate and NRR calculator

  Customer churn, revenue churn, GRR and NRR for one period.