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Performance

Payback period

Also known as: CAC payback · payback

Definition

Payback period is the time it takes for the gross profit from a customer to cover the cost of acquiring them. It measures how fast marketing spend returns as cash.

LTV:CAC tells you whether a business model works eventually. Payback period tells you whether it works soon enough to survive. A company with a healthy 4:1 LTV:CAC ratio and an 18-month payback can still run out of cash while growing, because every new customer consumes working capital before returning any.

For most growth-stage businesses, a payback inside 12 months is comfortable and inside 6 months is strong. The tighter your cash position, the more payback should govern spending decisions and the less weight LTV projections deserve.

Formula

Payback period = CAC ÷ (Monthly gross profit per customer)

More in Performance

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Cohort analysis

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Consent mode is a mechanism that adjusts how analytics and advertising tags behave based on a user's consent choices, allowing modelled measurement when tracking consent is withheld.

Contribution margin

Contribution margin is revenue minus all variable costs — cost of goods, shipping, payment fees, returns and marketing — showing what each sale actually contributes toward fixed costs and profit.

Conversion rate

Conversion rate is the percentage of visitors or sessions that complete a defined action — a purchase, form submission or booking — within a measurement period.

All 87 terms
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