The payback period is how many months of gross profit it takes to recover the cost of acquiring a customer. It is acquisition cost divided by monthly gross profit, and it is the cash flow question that sits underneath every growth plan. Lifetime value tells you whether a customer is ultimately profitable; payback tells you how long your money is tied up before you find out, which is what determines how fast you can grow without running out of cash.
Gross profit is the right numerator to divide into, not revenue. A customer paying $79 a month at a 76% margin only generates $60.04 of gross profit, so using revenue would shorten the apparent payback by nearly a quarter. The other common overstate is to load only media cost into CAC while excluding sales salaries, commissions and tooling, all of which are genuinely part of acquiring the customer.
The number becomes far more informative when set against churn. On the sample entries payback takes 8.0 months, but at 3.2% monthly churn only 77% of a cohort is still present at that point — so a material share of customers never repay their own acquisition cost, and the ones who stay must carry them. Expected lifetime is 31.2 months and the LTV to CAC ratio is 3.91. Twelve months is the usual payback benchmark for subscription businesses.
The formula
CAC- Fully loaded cost of acquiring one customer
ARPU- Average monthly revenue per customer
Gross margin- Share of that revenue left after serving the customer
Churn- Monthly loss rate, used to judge whether payback is reached
How to use this calculator
- Enter your fully loaded customer acquisition cost.
- Enter monthly revenue per customer and the gross margin on it.
- Enter monthly churn so survival to the payback point can be estimated.
- The gauge shows the payback period in months; lifetime value and survival follow.
Worked examples
$480 of acquisition cost
$79 a month at 76% margin is $60.04 of gross profit, so payback takes 8.0 months. Using revenue instead of gross profit would suggest 6.1 months and understate the true wait by 1.9 months.
Whether customers stay long enough
At 3.2% monthly churn, 77% of a cohort survives to the 8.0 month mark. Expected lifetime is 31.2 months, so the average customer contributes $1,396 of gross profit after repaying acquisition — an LTV to CAC ratio of 3.91.
How to read your score
Frequently asked questions
What payback period should I target?
Twelve months or less is the usual benchmark for subscription businesses, and under six months is strong. The right target depends on how much capital you have: a long payback is survivable if funded, and fatal if not.
Why divide into gross profit rather than revenue?
Because the cost of serving the customer continues every month. Only the margin above that cost is available to repay acquisition, so revenue-based payback is always optimistic by exactly the cost of service.
How does payback relate to LTV to CAC?
Payback measures speed, the ratio measures total return. A business can show a healthy 3:1 ratio with a two-year payback, which is fine for a well-funded company and impossible for a bootstrapped one.
Should churn change the payback calculation?
It does not change the arithmetic, which assumes the customer stays. It changes the interpretation: if a large share of a cohort leaves before the payback point, the average must be carried by survivors, and the blended economics are worse than the headline figure.
Payback reference
| Acquisition cost | $15 gross profit/mo | $30 gross profit/mo | $60 gross profit/mo | $100 gross profit/mo | $200 gross profit/mo |
|---|---|---|---|---|---|
| CAC $120 | 8.0 | 4.0 | 2.0 | 1.2 | 0.6 |
| CAC $250 | 16.7 | 8.3 | 4.2 | 2.5 | 1.2 |
| CAC $480 | 32.0 | 16.0 | 8.0 | 4.8 | 2.4 |
| CAC $900 | 60.0 | 30.0 | 15.0 | 9.0 | 4.5 |
| CAC $2000 | 133.3 | 66.7 | 33.3 | 20.0 | 10.0 |
Gross profit per month, not revenue. Revenue-based figures understate the wait.
| Monthly churn | Expected lifetime | Survivors at 8.0 months | CLV | LTV:CAC at $480 |
|---|---|---|---|---|
| 1.0% | 100.0 months | 92.3% | $6,004 | 12.51:1 |
| 2.0% | 50.0 months | 85.1% | $3,002 | 6.25:1 |
| 3.2% | 31.2 months | 77.1% | $1,876 | 3.91:1 |
| 5.0% | 20.0 months | 66.4% | $1,201 | 2.50:1 |
| 8.0% | 12.5 months | 51.3% | $750 | 1.56:1 |
| 12.0% | 8.3 months | 36.0% | $500 | 1.04:1 |
Payback is fixed at 8.0 months because it depends only on acquisition cost and monthly gross profit. Churn decides how many customers reach it.