Unit economics metric
CAC payback period
CAC Payback Period measures how long the business waits to recoup the cost of acquiring a customer. Even with healthy LTV:CAC, a long payback period is a working-capital constraint — the business is financing the gap. Indie SaaS targets typically 6-18 months; over 36 months requires patient capital.
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Formula
Payback (months) = CAC / (ARPU × gross margin %)
Where:
- CAC = Customer acquisition cost.
- ARPU = Average monthly revenue per user.
- gross margin % = (Revenue - cost of goods sold) / revenue.
Worked example
CAC is $84. ARPU is $42.21. Gross margin is 85%. Payback = $84 / ($42.21 × 0.85) = $84 / $35.88 = 2.34 months. That is excellent for indie SaaS.
What it tells you
- How fast the acquisition engine self-funds. Short payback means you can reinvest acquisition spend quickly.
- The working-capital implication of growth. Long payback means growth requires patient cash.
- A complement to LTV:CAC — a 5:1 LTV:CAC with 36-month payback is harder to operate than 3:1 with 6-month payback.
What it does NOT tell you
- Total customer value. Payback ends at break-even; LTV continues beyond.
- Quality of the post-payback customers.
- Whether the payback period is stable. Channel mix changes the rate.
Common miscalculations
- Using revenue instead of gross profit. Payback is paid back from profit, not revenue.
- Ignoring the time-value of money. For very long payback (over 24 months), discounting starts to matter.
- Reporting payback as a single number when channel mix varies. Per-channel payback is more useful for budget decisions.
Frequently asked
- What is a 'good' CAC payback period for indie SaaS?
- Under 12 months is healthy; under 6 months is excellent. Over 24 months requires founder funding or external capital to sustain growth.
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