About the Payback Period Calculator
What is the CAC Payback Period?
The Customer Acquisition Cost (CAC) Payback Period is the number of months it takes for your company to earn back the money it spent to acquire a new customer. A shorter payback period means you can reinvest your money faster to fuel growth, and it is a key metric for understanding the impact of customer churn on your cash flow.
How Churn Affects Payback Period
Customer churn is a critical factor here. If a customer churns before their payback period is over, you have lost money on that acquisition. A high churn rate means fewer customers stick around long enough to become profitable. Therefore, reducing churn is essential not just for revenue, but for ensuring your acquisition strategy is financially viable.
How to Use This Tool
- Customer Acquisition Cost (CAC) ($): Enter your total cost to acquire one new customer.
- Average Revenue Per Month ($): Input the average amount a customer pays you each month.
- Gross Margin (%): Enter your gross margin percentage to account for the cost of servicing the customer.
Benefits of Tracking Payback Period
- Manage Cash Flow: Understand how long your capital is tied up in new acquisitions.
- Assess Acquisition Channels: Compare payback periods for different marketing channels to find the most efficient ones.
- Gauge Customer Profitability: Ensure your pricing and LTV:CAC ratio allow for profitable customer relationships.
- Highlight the Cost of Churn: A long payback period makes early-stage churn even more damaging to your bottom line.