CAC payback period is the number of months of gross profit a new customer must generate to repay what it cost to acquire them. Divide customer acquisition cost by the new monthly recurring revenue per customer multiplied by gross margin. Shorter is better: it tells you how quickly growth pays for itself.
What is the CAC payback period?
Every new customer starts in a hole equal to the sales and marketing money spent to win them. CAC payback measures how long it takes to climb out using the gross profit that customer produces each month. It is a capital-efficiency metric: the longer the payback, the more cash you need to fund each unit of growth.
Worked example
| Input | Value |
|---|---|
| Sales & marketing spend, Q2 (fully loaded) | $600,000 |
| New customers, Q2 | 40 |
| CAC | $15,000 |
| Average new MRR per customer | $1,250 |
| Gross margin | 80% |
| Monthly gross profit per customer | $1,000 |
| CAC payback | 15 months |
What is a good CAC payback period?
In SaaS Metrics 2.0, David Skok observes that many of the best SaaS businesses recover CAC in 5–7 months and that profitability is anemic once the time to recover CAC extends beyond 12 months.1Source 1 · David Skok, For EntrepreneursSaaS Metrics 2.0 – A Guide to Measuring and Improving What Mattersforentrepreneurs.com Enterprise products with large contracts and long sales cycles often run longer, so compare against peers with similar deal sizes and always pair payback with gross revenue retention: a 12-month payback is fine if customers stay for years, dangerous if a third leave in year one.
Common mistakes
- Leaving salaries out of CAC. a16z argues CAC should be the full cost of acquiring customers, including referral fees, credits and discounts;2Source 2 · Andreessen Horowitz (a16z), 201516 Startup Metricsa16z.com sales and marketing payroll belongs there too.
- Skipping gross margin, which flatters the result: at an 80% margin, a revenue-based payback looks 20% shorter than the real one.
- Using blended CAC only. Organic signups lower blended CAC and can hide a paid channel that never pays back.
- Ignoring the lag between spend and closed deals. For long cycles, divide last quarter’s spend by this quarter’s new customers.
How to track CAC payback in Kimo
Kimo joins spend from Google Ads, Meta and LinkedIn with payroll or finance exports from QuickBooks or Xero, new customers from your CRM and MRR from billing. Define CAC and gross margin once as measures, then view payback by channel and quarter in the revenue view or the board deck template.
Frequently asked questions
Should CAC payback use revenue or gross margin?
How is CAC payback related to LTV:CAC?
Can CAC payback be calculated per channel?
Sources
2 references- SaaS Metrics 2.0 – A Guide to Measuring and Improving What Matters (opens in a new tab)David Skok, For Entrepreneursforentrepreneurs.com
Best SaaS businesses recover CAC in 5–7 months; beyond 12 months profitability is anemic.
- 16 Startup Metrics (opens in a new tab)Andreessen Horowitz (a16z)2015a16z.com
CAC should be the full cost of acquisition; blended vs paid CAC.
External sources were accessed at the time of writing. Kimo product details, customers and figures in examples are illustrative unless a source is cited.
