How to use the cac payback period calculator
- Enter your customer acquisition cost, the money it takes to win one customer. The customer acquisition cost calculator can work it out.
- Enter the monthly revenue per customer and the gross margin, the share of that revenue left after the direct cost of serving the customer. Use 100 percent to work from revenue alone.
- Optionally open the advanced options and enter a monthly churn percentage, the share of customers who leave each month. The tool then shows how churn lengthens the payback.
- Read the number of months to recover the cost and the month by month table.
Formula
Monthly gross profit = monthly revenue x gross margin
Payback months = acquisition cost / monthly gross profit
With monthly churn c: expected gross profit after n months = g x (1 - (1 - c)^n) / c
Payback n = ln(1 - cost x c / g) / ln(1 - c)
In the churn version a customer is still active in month k with probability (1 - c)^(k - 1). Payback is never reached when cost x c is at least g, because expected gross profit tops out at g / c.
A $600 cost and $50 of monthly gross profit
Acquisition cost is $600. Each customer pays $100 a month and the gross margin is 50%, so monthly gross profit is $50.00. Payback = $600 / $50.00 = 12.0 months if every customer stays.
Now add 5% monthly churn. Payback = ln(1 - 600 x 0.05 / 50) / ln(0.95) = ln(0.4) / ln(0.95) = 17.9 months. After 12 months the expected gross profit is $459.64, which leaves $140.36 still to recover. With 10% churn the expected gross profit can never exceed $500.00, so the $600 is not recovered.
Why churn changes the answer
The simple formula assumes every customer stays until the cost is repaid. In real life some leave first. The churn option weights each month by the chance the customer is still there, so later months count for less. A higher churn rate stretches the payback and, if it is high enough, removes it entirely.
The churn model here is a deliberate simplification: a constant monthly rate, no later expansion in revenue and no cost of money. Treat it as a way to see the direction and size of the effect, not as a forecast.
Reading the result
A shorter payback returns cash sooner, and a longer one ties it up for longer. What counts as acceptable depends on your cash, your margins and how long customers actually stay, so this page offers no target. Compare your result across periods or across channels.
For the profit a customer brings over a whole relationship, see the customer lifetime value calculator.
Assumptions and limits
- Gross margin and monthly revenue per customer stay constant.
- Without a churn rate, every customer stays until payback.
- With churn, the rate is constant each month and a customer who leaves brings no more profit.
- The tool ignores discounting, taxes, expansion revenue and any cost beyond the gross margin.
Frequently asked questions
How do I calculate CAC payback period?
Divide the customer acquisition cost by the monthly gross profit from one customer. A $600 cost and $50 of monthly gross profit give 12 months.
Should I use revenue or gross profit?
Gross profit is the usual choice because revenue does not pay for the cost of serving the customer. If you enter 100 percent as the gross margin the tool works from revenue alone.
What does it mean when the payback is not recovered?
With the churn rate you entered, the expected gross profit from a customer never reaches the acquisition cost. The ceiling is the monthly gross profit divided by the churn rate.
Does a shorter payback always mean a better business?
Not necessarily. A short payback returns cash quickly, but it says nothing about how many customers you can win or how long they stay. Use it alongside other measures.