CAC Payback

Definition, formula, and why it's important

Table of Contents

What is CAC Payback?

How do you calculate CAC Payback?

Why is CAC Payback important?

What is CAC Payback?

In short, CAC payback is the amount of time it takes for a company to earn back the money it spent acquiring a customer. To calculate CAC payback, you simply divide the company's total customer acquisition costs by its monthly recurring revenue.

So, for example, let's say a company spends $100,000 on customer acquisition in a month and has a monthly recurring revenue of $10,000. In this case, the company's CAC payback would be 10 months.

Why is CAC Payback Important?

CAC payback is important because it allows startups to track their progress in acquiring customers and to assess whether their customer acquisition efforts are sustainable in the long run. If a company has a CAC payback of 12 months or more, that means it could take more than a year for the company to earn back the money it spent acquiring a customer. This might not be sustainable in the long run. However, if a company has a CAC payback of 6 months or less, that means it's likely on track to acquire customers in a way that is sustainable and profitable.

Of course, there is no magic number when it comes to CAC payback. The amount of time it takes for a company to earn back its customer acquisition costs will vary depending on the business and its specific circumstances. However, tracking CAC payback is still a helpful way to assess whether a startup is on track to acquire customers profitably.

In Conclusion

CAC payback is an important metric for startups to track because it allows them to assess whether their customer acquisition efforts are sustainable in the long run. If your company's CAC payback is 12 months or more, that means it could take more than a year for you to earn back the money you spent acquiring a customer. This might not be sustainable in the long run. However, if your company's CAC payback is 6 months or less, that means you're likely on track to acquire customers in a way that is sustainable and profitable. So keep an eye on your CAC payback! It just might be the key to your startup's success. And if you're still thinking, what the heck is CAC??? Checkout this Glossary entry!

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