Description
CAC (customer acquisition cost) payback period is the time it takes a company to earn back the money it spent in acquiring a customer. The CAC payback period ultimately helps in determining how much cash the company will need in order to grow.
Example
To calculate the CAC Payback Period, companies must estimate three other important metrics: Customer Acquisition Cost (CAC), Average Revenue Per Account (ARPA), and Gross Margin percent. The calculation is:(Customer acquisition cost / average revenue per account)*gross margin percent = the total months it will take to recover CAC.
Why it matters
By estimating the CAC Payback period, companies can determine the timeline by which they can begin earning profits from a customer account. This metric is ideal for measuring capital efficiency for a SaaS company. For faster profitability, companies must aim for a shorter payback period.