Payback period (CAC payback period)
The payback period is how many months of a customer's payments it takes to cover what you spent to win them: CAC divided by what they pay each month.
Worked example (made-up numbers)
Customers from your ads cost $100 each (CAC) and pay $20 a month (ARPA). Payback is $100 ÷ $20 = 5 months.
From a newsletter sponsorship, customers cost $300 and pay the same $20: payback is 15 months. If customers typically stay about a year, the newsletter never pays back.
Why it matters when you’re starting out
LTV:CAC says whether a channel is worth it in the end. Payback says how long your money is gone before it comes back. When you’re paying for ads out of savings, a channel that pays back in three months lets you reinvest four times a year; one that pays back in eighteen months can run you out of cash while looking profitable on paper.
It also sets a limit: if customers usually stay eight months, any channel with a payback longer than that loses money on the average customer, however good its signup numbers look.
How to measure it
- Work out CAC per channel: spend divided by paying customers.
- Work out what those customers pay per month on average (ARPA), in the same currency.
- Divide CAC by ARPA.
- Compare the result with how long customers stay, which follows from your churn rate.
A stricter version uses gross margin instead of revenue (what’s left after payment fees and hosting), which lengthens payback a little; for a small software product the difference is usually modest.
In Nordva Launch
The Insights sources table shows LTV:CAC per source, and its tooltip shows the payback in months, from recorded spend and the customers Launch traced to each source in Stripe. It needs the Indie plan.