How many months a new customer has to stay before their gross profit pays back what it cost to acquire them.
CAC payback period tells you how long your money is tied up in each new customer. It uses gross profit rather than revenue, because only the margin left after serving the customer is available to repay the acquisition cost.
You spend $900 to acquire a customer who pays $100 a month at an 80% gross margin. Each month they generate $80 of gross profit, so payback = 900 ÷ 80 = 11.3 months.
For subscription businesses, under 12 months is widely treated as healthy, and many investors look for it. Longer paybacks can work for enterprise contracts with low churn, but they mean every new customer drains cash for longer — so growth needs more funding. If your monthly churn is high, customers may leave before they ever pay back.
Payback tells you how fast you get your money back; the LTV:CAC ratio tells you how much you get back in total. A business can have a great ratio and still run out of cash if payback is too slow.
How do you calculate CAC payback? Divide customer acquisition cost by monthly gross profit per customer (monthly revenue × gross margin). $900 CAC ÷ $80 monthly gross profit = 11.3 months.
Should I use revenue or gross profit? Gross profit. Revenue-based payback looks faster but ignores the cost of serving the customer, which overstates how quickly you recover cash.
What if customers churn before payback? Then the average customer never repays their CAC. Compare payback with average customer lifetime (1 ÷ monthly churn rate) — lifetime should be several times longer than payback.
