The number of months it takes for a customer to repay the cost of acquiring them, measured in gross-margin revenue.
CAC payback period (months) = CAC ÷ (ARPU × gross margin %)
CAC of £400, ARPU of £100/mo, gross margin of 80%.
£400 ÷ (£100 × 0.80) = £400 ÷ £80 = 5 months
CAC payback period tells you how long your money is tied up before a new customer becomes profitable. It divides acquisition cost by the gross-margin revenue that customer generates each month.
Using gross margin rather than raw revenue matters: only the revenue left after the cost of serving the customer actually goes toward repaying acquisition. Skipping margin makes payback look faster than it is.
A shorter payback period means you recover cash faster and can reinvest it sooner, which is especially important for businesses that are not yet flush with capital. Long payback periods strain cash flow even when LTV:CAC looks healthy.
Payback period is a cash-flow metric, not just a profitability one. Two businesses with identical LTV:CAC can have very different cash needs — the one with faster payback recycles capital into growth sooner and is far less fragile.
Under 12 months is healthy for SMB SaaS; under 18 months is acceptable for enterprise. Best-in-class can recover CAC in under 6 months.
Only the gross-margin portion of revenue is available to repay acquisition cost — the rest covers the cost of serving the customer. Ignoring margin makes payback look faster than it really is.
Under 12 months is a healthy target for SMB SaaS, and under 18 for enterprise. It pairs with the LTV:CAC ratio to judge acquisition health.
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