CAC payback period calculator

What it does

This CAC payback period calculator tells you how many months it takes to earn back the cost of winning a customer. Enter your sales and marketing spend and the number of new customers it brought in, or type a customer acquisition cost (CAC) you already know. Add the monthly revenue per customer and your gross margin. The page returns the simple payback period, a churn-adjusted payback that allows for customers who leave early, the share of CAC recovered in the first year and a month-by-month table. It runs in your browser.

How to use it

1. Pick a currency and choose whether to work out CAC from spend or enter it directly.
2. For spend, include ad budgets, tools and the salaries of anyone whose job is winning customers, for the same period as the customer count.
3. Enter monthly revenue per customer and your gross margin.
4. Enter monthly churn for the churn-adjusted figure, or 0 to skip it.
5. Read both payback figures and copy the summary.

How to read the result

In the example, 30,000 of sales and marketing spend brings in 75 customers, so CAC is 30,000 ÷ 75 = 400. Each customer pays 50 a month at an 80% gross margin, which is 40 of gross profit a month. Simple payback is 400 ÷ 40 = 10 months.

With 2% monthly churn, about 82% of customers are still subscribed at month 10, so the group as a whole has not yet earned back its CAC. The expected gross profit per new customer after n months is 40 × (1 − 0.98^n) ÷ 0.02. That reaches 400 at about 11 months, so churn-adjusted payback is 11.0 months, and by month 12 the average customer has repaid about 108% of CAC.

Raise churn to 4% and the churn-adjusted figure stretches to about 12.5 months, while the simple payback stays at 10. At 10% churn, lifetime gross profit is 40 ÷ 0.10 = 400, exactly the CAC, and payback never arrives. The gap between the two numbers grows quickly as churn rises, which is why the simple figure can look fine for a business that is losing money on each customer.

The formulas:

• CAC = sales and marketing spend ÷ new customers
• Simple payback = CAC ÷ (monthly revenue per customer × gross margin)
• Churn-adjusted payback = ln(1 − CAC × churn ÷ monthly gross profit) ÷ ln(1 − churn)

Payback tells you how long cash is tied up in each customer, so compare it with your runway. To break CAC down by channel, use the CAC calculator, and to see the full lifetime value, the LTV calculator.

One way to shorten payback is to turn more sign-ups into paying customers for the same spend, which depends on onboarding inside the product. Our web app development service builds and improves those flows.