How it works
CAC payback is the number of months a new customer must stay before the gross profit they generate repays what it cost to acquire them. It is one of the core unit-economics metrics for subscription businesses.
Customer acquisition cost is total sales and marketing spend for a period divided by the new customers won in that period. Payback uses gross profit, not revenue, because the cost of serving the customer has to be covered first.
Adding monthly churn gives lifetime value (gross profit per month ÷ churn) and the LTV:CAC ratio.
Formula
CAC = Sales & marketing spend ÷ New customers. Payback (months) = CAC ÷ (Monthly revenue per customer × Gross margin). LTV = Monthly gross profit ÷ Monthly churn.
Questions people ask
What is a good CAC payback period?
For subscription software, under 12 months is generally considered strong and 12–18 months acceptable. Businesses selling to small companies, which churn faster, usually need shorter paybacks than those selling to large enterprises.
Should CAC include salaries?
Yes. A fully loaded CAC includes sales and marketing salaries, commissions, tools and agency fees as well as ad spend. Paid-only CAC is useful for channel decisions but understates the true cost.
Why does churn matter for payback?
If customers leave on average before the payback month, you lose money on each one. Payback should be comfortably shorter than average customer lifetime (1 ÷ monthly churn).