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Payback Period

Definition

Payback period is how long it takes to recover the cost of acquiring a customer (CAC). Calculated as CAC divided by monthly profit per customer.

Extended Definition

Formula: Payback Period = CAC / (Monthly Revenue per Customer - Monthly Cost to Serve). Example: CAC is $600, customer pays $100/month, costs $20/month to serve. Payback = $600 / $80 = 7.5 months. Under 12 months is healthy for most SaaS. Under 6 months is excellent. Long payback periods strain cash flow and limit growth.

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