What is CAC payback period?
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Founder, ProveWorth
In a hypothetical example, you spend $180 to win a customer who pays $45 a month, and after fuel, labor and supplies you keep $27. You earn the $180 back in 6.7 months, because $180 divided by $27 is 6.7. That is your CAC payback period.
The formula is CAC divided by monthly contribution, which is monthly revenue minus the cost of doing the work. Keep all $45 and payback is 4 months. Keep only $18 and it is 10 months.
The catch is the customer who leaves first. Payback assumes they stay. If they cancel before month 7 in this example, that customer cost you money.
Should I count revenue or what is left?
Count what is left. Payback on revenue looks faster than it is, because the revenue includes money you spent doing the work.
On $45 of revenue, the example above pays back in 4 months. On the $27 you keep, it takes 6.7.
Add up what a month of service costs you in fuel, labor, dump fees and supplies, subtract it from the price, and use the remainder. If you are unsure, run the math at a low and a high margin and look at the spread.
What if the customer cancels early?
Then the acquisition did not pay back. The formula assumes the customer stays and pays, and it ignores churn, overhead and financing.
With no contract you will not know in advance. Look at your own accounts and count how many stopped before month 7. I found no public retention figure for route work, so your own list is the best source you have.
What payback period is good?
No public source gives a target worth trusting, so pick the one your cash can carry. A 4-month payback and a 10-month payback both work if the customer stays and you can afford the wait.
The bigger risk is a customer who leaves before the number arrives.
Does my own time count?
Yes. If you spend hours selling or hanging flyers, put a price on them and add them to CAC before you divide. Unpaid hours still come out of your week.
What do I do next?
Start with what is CAC if you have not worked out your own number. For the money side, read ROAS vs ROI, and for one channel with real postage numbers, Every Door Direct Mail cost.
A steady stream of reviews on your own page helps the next customer say yes. You can get your free page or see how it works.
Sources
Key takeaways
- 1CAC payback period is CAC divided by the money you keep each month after the cost of doing the work.
- 2In the hypothetical example, a $180 CAC and $27 kept a month pays back in 6.7 months.
- 3Using revenue instead makes payback look faster. The same example shows 4 months on $45 and 6.7 on the $27 you keep.
- 4A customer who cancels before payback costs you money, and the formula ignores that risk.
- 5Your own time counts as part of CAC when you spend hours selling.
Related questions
How do I calculate CAC payback period?
Divide CAC by the money you keep each month from that customer. In a hypothetical example, a $180 CAC and $27 kept a month is 6.7 months.
Do I use revenue or what is left?
Use what is left after fuel, labor, dump fees and supplies. Revenue makes payback look faster than it is.
What if the customer cancels early?
Then the acquisition did not pay back. The formula assumes the customer stays and pays, and it ignores churn.
What payback period is good?
No public source gives a target worth trusting. Pick the one your cash can carry and your own retention supports.
Does my own time count?
Yes. Put a price on the hours you spend selling and add them to CAC before you divide.