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Payback Period

The time it takes to recover your customer acquisition cost through profit generated from that customer.
Tags:metricsltvcacsaasprofitability

The Payback Period is how long it takes to recover the money you spent acquiring a customer through the profit they generate.

If you spend $100 to acquire a customer (your Customer Acquisition Cost), and they generate $20 in profit per month, your payback period is 5 months ($100 ÷ $20 = 5 months).

The formula: Payback Period = CAC ÷ (Monthly Revenue × Gross Margin)

A shorter payback period means better cash flow and less risk. You get your money back faster, which means you can reinvest it into acquiring more customers.

Common benchmarks:

  • 12 months or less: Good target for most businesses
  • 5-7 months: Ideal for SaaS companies
  • Over 18 months: Risky - too long to recover investment
Payback Period is different from ROI or LTV. ROI tells you how much profit you make, while Payback Period tells you how fast you recover your initial investment. Both are important for understanding your business health.