CAC Payback Period
CAC Payback Period is the number of months it takes for a customer to generate enough gross margin to recover the cost of acquiring them. It measures how quickly your acquisition investment pays for itself and directly impacts your cash flow and capital requirements.
Why CAC Payback Period Matters for SaaS Companies
LTV:CAC tells you if customers are worth acquiring. Payback period tells you how much cash you need to fund that acquisition. A 3:1 LTV:CAC with an 18-month payback means you need 18 months of cash runway before each customer breaks even. For capital-efficient Seed to Series B companies, shorter payback periods mean less dependence on external funding to grow.
Formula
CAC Payback (months) = Fully-Loaded CAC / (ARPA x Gross Margin %)
Benchmark
Best-in-class: under 6 months. Good: 6-12 months. Acceptable: 12-18 months. Red flag: over 18 months.
Tools for Measurement
An Operator's Take
Payback period is the metric I wish more founders tracked. I have seen companies with great LTV:CAC ratios nearly run out of cash because their payback was 20+ months. They were acquiring profitable customers they could not afford to acquire. At one engagement, moving from monthly to annual contracts (with a small discount) dropped the effective payback from 14 months to 2 months. Same customers, same LTV, dramatically different cash flow. The lesson: payback period is often a pricing and packaging problem, not an acquisition efficiency problem.
Common Mistakes
What I see go wrong at Seed to Series B companies.
Not using gross margin in the payback calculation. If margins are 75%, it takes 33% longer to recover CAC than a revenue-only calculation suggests.
Only counting marketing spend in CAC. Fully-loaded CAC (including sales salaries, tools, onboarding) is what matters for payback.
Not factoring in contract structure. Annual prepaid contracts recover CAC much faster than monthly subscriptions, even if the total value is similar.
What to Do This Week
Concrete steps you can take right now.
Calculate your CAC payback using fully-loaded CAC and gross margin (not revenue). How many months to break even?
If payback exceeds 12 months, model the impact of annual contracts with a small discount (10-15%). Often dramatically improves payback.
Segment payback by acquisition channel. Channels with short payback are more capital-efficient than high-LTV channels with long payback.
Related Resources
Try These Tools
Further Reading
Frequently Asked Questions
What is a good CAC payback period?
Under 12 months is the standard benchmark for healthy SaaS. Under 6 months is excellent and signals strong capital efficiency. Over 18 months is a red flag — you need significant cash reserves or external funding to sustain growth. The best SaaS companies recover CAC in 5-8 months.
How do you shorten CAC payback period?
Three approaches: increase ARPA (pricing improvements, upsell packaging), improve gross margins (reduce COGS), or reduce CAC (improve conversion rates, shift to lower-cost channels). The fastest fix is often contract structure — moving from monthly to annual contracts with a small discount can cut payback from 14 months to under 3.
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