Key takeaways
- Payback months = CAC divided by (new MRR per customer times gross margin).
- Use gross margin, not revenue, or payback looks shorter than it is.
- Fully loaded CAC includes sales and marketing salaries, not only ad spend.
How to calculate CAC payback
First find CAC: total sales and marketing cost in a period divided by new customers won in it. Then divide CAC by the monthly gross profit each new customer brings.
Example: a company spends $300,000 on sales and marketing in a quarter and wins 50 customers, so CAC is $6,000. Each pays $500 a month at an 80 percent gross margin, which is $400 of gross profit a month. CAC payback is 6,000 divided by 400: 15 months.
What CAC payback tells a fund
Payback shows how long each new customer ties up cash. Combined with churn, it shows whether customers stay long enough to pay back at all. A company with 15-month payback and customers who leave after a year is losing money on every sale, however fast it grows.
Mistakes to check for
- Paid-only CAC that leaves out salaries, tools and agency fees.
- Revenue used instead of gross margin.
- Blended CAC that mixes free word-of-mouth customers with expensive outbound ones.
- Costs and customers from different periods, when sales cycles are long.
Common confusions
- CAC payback versus LTV to CAC: payback is a time; LTV to CAC is a ratio of lifetime value to cost.
- CAC payback versus burn multiple: payback covers acquisition only; burn multiple covers all spending.
- A short payback in one channel may not hold when that channel is scaled.