Metrics & Performance
Payback Period
The time required for a company to recover its Customer Acquisition Cost (CAC) from the gross margin generated by that customer.
Payback Period = CAC / (Monthly Recurring Revenue per Customer x Gross Margin %)
A company with a $1,200 CAC, $100 MRR per customer, and 80% gross margin has a payback period of 15 months ($1,200 / $80 = 15). Consumer SaaS typically targets 12-18 months; enterprise SaaS can stretch to 24-36 months given higher ACV and retention.
In Practice
If a company spends $600 to acquire each SMB customer who pays $50/month on a product with 75% gross margins ($37.50 contribution), payback period is $600 / $37.50 = 16 months. If churn is high and average tenure is only 12 months, the company is never recovering its CAC.
Why It Matters
Short payback periods mean the company generates cash faster, requiring less capital to grow. Long payback periods require significant upfront capital investment and only make sense with very high retention — otherwise the math never works.