CAC payback period is how many months of revenue from a new customer it takes to recover what it cost to acquire them, a measure of how fast acquisition spend gets returned rather than how large it is.
CAC payback period divides customer acquisition cost by the monthly recurring revenue, or more precisely monthly gross margin, that a new customer generates. The result is a number of months: how long it takes revenue from that customer to cover what it cost to acquire them. A shorter payback period means capital tied up in acquisition gets freed up faster to reinvest in winning the next customer.
Dividing by raw monthly recurring revenue overstates how fast a company actually recovers acquisition spend, since it ignores the cost of delivering the product in the first place. Dividing by gross margin instead, monthly revenue times gross margin percentage, gives a more honest number, because it only counts the revenue actually available to pay back anything once cost of goods sold is covered. The two versions of the metric can differ meaningfully, and comparing a revenue-only figure at one company to a margin-adjusted figure at another isn't a fair comparison.
Confirm which version, revenue-only or margin-adjusted, is being used before comparing CAC payback across companies or channels. The two aren't interchangeable, and the gap between them widens as gross margin gets thinner.
A short CAC payback period gets read as automatically good. But a short payback on a low-ACV, high-churn customer base can still be a weak business if those customers don't stick around long enough to generate meaningful revenue past the payback point. Payback speed and lifetime value need to be read together, not separately.
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