Payback · payback period
Payback (payback period) is the time needed for the margin generated by a customer to pay back their acquisition cost.
The formula
Payback (months) = CAC ÷ Margin generated per customer per month
A concrete example
Example
A CAC of $480 and a margin of $80 per month: payback = 480 ÷ 80 = 6 months.
Why it matters
The shorter the payback, the less cash your growth ties up. A long payback can be viable, but it forces you to finance the gap: it is a cash issue as much as a profitability one.