CAC Payback period

How to Calculate CAC Payback Period

Formula for CAC Payback Period

CAC Payback Period = CAC / (MRR × Gross Margin)

Where:

• CAC: Customer Acquisition Cost
• MRR: Monthly Recurring Revenue per customer
• Gross Margin: (Revenue – Cost of Goods Sold) / Revenue

Example

Let’s say:

• CAC: $1,000
• Monthly revenue per customer: $100
• Gross margin: 80%

Calculation:

$1,000 / ($100 × 0.80) = 12.5 months

Result: It takes 12.5 months to recover your customer acquisition cost!

Why Is the CAC Payback Period Important?

This metric acts as a health check for your SaaS business! 🏥

Key Benefits

• Cash Flow Management: Shows how long capital is tied up and helps predict cash flow needs.
• Growth Planning: Indicates sustainable growth rate and guides marketing spend and pricing strategies.
• Business Efficiency: Measures marketing effectiveness and sales efficiency, and highlights customer success impact.
• Investment Decisions: Helps prioritize customer segments and channel investments.

What Is a Good CAC Payback Period?

Benchmarks vary by SaaS business model:

• Early-stage SaaS: 12-18 months
• Enterprise SaaS: 18-24 months
• SMB-focused SaaS: 6-12 months

Pro Tips to Improve Your CAC Payback Period

• Optimize acquisition channels: Focus on high-performing customer acquisition strategies.
• Increase customer lifetime value: Upsell, cross-sell, and reduce churn to maximize revenue.
• Improve gross margins: Streamline operations to reduce costs and increase profitability.
• Enhance onboarding efficiency: Help customers see value quickly to reduce churn.