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CAC Payback Period

What is CAC Payback Period?

CAC Payback Period is the time it takes for a customer to pay back their customer acquisition costs. The value depends on how high the Customer Acquisition Cost (CAC) is and how much a customer contributes in revenue each month or each year.

Alternate names: Customer Acquisition Cost Payback Period

How to calculate CAC Payback Period

ƒ Average(CAC per customer) / ( Average(ARR or MRR per customer) X Gross Margin % )

What is a good CAC Payback Period benchmark?

Typically, this should be less than 12 months.

More about this metric

CAC Payback Period combines three fundamental metrics to help you understand earnings from your customers: Customer Acquisition Cost (CAC), the all-inclusive marketing and sales cost you spend in a period, new Monthly Recurring Revenue (MRR), that which is acquired from new customers in the period, and your overall Gross Margin percentage (GM%)

Note that CAC Payback Period does not factor in churn. It assumes that you will see a return on your customer acquisition cost during the lifetime of your customer (before they could, theoretically, churn). For this reason, it's important to also monitor your LTV:CAC Ratio. Customers who churn within the CAC Payback Period are costing you.

Understanding CAC Payback Period helps you decide how aggressive you should be when acquiring new customers on yearly or multi-year plans vs monthly plans (which typically have a higher churn rate). From a cash perspective, if, on average, it takes you 10 months to recover the cost to acquire a customer, and you are able to sell an annual "paid upfront" plan, then your payback period for that customer is 0 - or instantaneous. It's cash in the bank, that you will not need to finance via debt or equity.

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