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.
Related Terms
CAC (Customer Acquisition Cost)
CAC is how much it costs to acquire one paying customer. Calculate it by dividing total sales and marketing spend by the number of new customers acquired in that period.
LTV (Lifetime Value)
LTV is the total revenue you expect from a customer over their entire relationship with your business. It's the north star for determining how much you can afford to spend on acquisition.
Unit Economics
Unit economics measures profitability per customer. It's the revenue one customer generates (LTV) minus the cost to acquire and serve them (CAC + COGS). Positive unit economics = you make money on each customer.