CAC Payback Period
Best-in-class SaaS has CAC payback under 12 months. Payback over 18 months typically requires venture funding to sustain growth (Bessemer 2024).
💡TL;DR
CAC Payback = CAC / (Monthly ARPU × Gross Margin %). Example: $3,000 CAC / ($300 ARPU × 75% margin) = 13.3 months. Benchmarks: <12 months (excellent), 12-18 months (acceptable), >18 months (needs improvement). Payback determines cash efficiency—long payback requires more capital to fund growth. SMBs should target <12 months since runway is often limited.
Definition
The number of months it takes to recover the cost of acquiring a customer through their gross margin contribution. CAC Payback = CAC ÷ (Monthly ARPU × Gross Margin). Shorter payback means faster reinvestment into growth.
🏢What This Means for SMB Teams
SMB SaaS with limited funding should obsess over payback. Every month of payback beyond 12 requires more cash runway. Shorter payback = self-funded growth potential.
Track MRR, churn, CAC payback—AI acts when metrics slip.
Metrics that matter, actions that move them.
📋Practical Example
A 20-person analytics SaaS had CAC payback of 22 months—requiring constant fundraising. They analyzed by channel: paid ads had 28-month payback, content/SEO had 14-month payback. They cut paid spend 50%, reinvested in content, and raised prices 15% for new customers. After 6 months, blended CAC payback dropped to 15 months, reducing monthly cash burn by $45k and extending runway 8 months.
🔧Implementation Steps
- 1
Calculate fully-loaded CAC including all acquisition costs (ads, sales, tools).
- 2
Use contribution margin (ARPU × gross margin) not revenue for payback calculation.
- 3
Segment payback by acquisition channel to identify efficiency gaps.
- 4
Set payback ceiling (e.g., 15 months) as go/no-go criteria for new channels.
- 5
Track payback trend monthly; alert if it increases >20% from baseline.
❓Frequently Asked Questions
Should I include expansion revenue in payback calculation?
Calculate both: "initial payback" using starting ARPU, and "full payback" including expected expansion. Initial payback is conservative and useful for channel decisions. Full payback shows true economics but requires expansion assumptions.
How does payback relate to LTV:CAC?
They measure different things. LTV:CAC shows total return on acquisition investment. Payback shows cash efficiency—how fast you recover the investment. Both matter: high LTV:CAC with long payback requires capital; lower LTV:CAC with short payback enables bootstrapping.
⚡How Optifai Uses This
Optifai tracks CAC payback by channel and cohort, alerting when payback exceeds thresholds. The Revenue Ledger shows how specific campaigns and actions affect acquisition efficiency.
📚References
- •
- •
Related Terms
CAC (Customer Acquisition Cost)
Total sales and marketing spend divided by new customers gained in a period. It includes media, tools, payroll, agencies, and overhead allocated to acquisition. Teams track CAC alongside payback period and LTV to know whether growth is profitable.
LTV (Customer Lifetime Value)
The total revenue a business expects from a single customer account over the entire relationship. LTV = ARPU × Gross Margin × Customer Lifespan (or ARPU × Gross Margin ÷ Churn Rate). It determines how much you can spend to acquire customers profitably.
MRR (Monthly Recurring Revenue)
The predictable revenue a SaaS company expects to receive every month from active subscriptions. MRR = Sum of (customers × monthly subscription price). It normalizes annual and monthly contracts into a single metric for tracking growth velocity.