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Calculator

CAC Payback Period Calculator

Your acquisition cost is paid on day one. The customer pays you back a little each month. This calculator works out how many months that takes, using gross profit rather than revenue, so the answer reflects money you actually keep. Everything runs in your browser and nothing is sent anywhere.

Enter your customer acquisition cost and the monthly revenue per customer to see a result.

How this works

Acquisition cost divided by monthly gross profit per customer. Monthly gross profit is the monthly revenue multiplied by your gross margin, so a customer paying £250 a month at a 75% margin contributes £187.50 a month towards repaying what you spent winning them.

Using margin rather than revenue matters. If you divide by revenue you will get a shorter, cheerier payback period that ignores the cost of actually delivering the service. The money that repays an acquisition cost is the money left after you have served the customer, not the money that arrives in the bank.

The result is shown to one decimal place, along with the whole month you are into before the customer has broken even. A payback of 6.7 months means you are seven months into the relationship before that customer stops being an investment.

Payback period is a cash flow measure, not a profitability one. It answers "how long is my money tied up", which is the question that actually constrains most small businesses. A business can be perfectly profitable on a lifetime basis and still run out of cash because every new customer takes fourteen months to repay.

A worked example

Take an acquisition cost of £1,250, a customer paying £250 a month, and a gross margin of 75%.

Monthly gross profit: £250 × 75% = £187.50.

Payback period: £1,250 ÷ £187.50 = 6.7 months.

So you are into month seven before that customer has paid back what it cost to win them. Everything after that is contribution — assuming they stay, which is the assumption the whole thing rests on.

Here is why that assumption is the crux. If your average customer only stays ten months, a 6.7-month payback leaves you barely three months of profitable relationship. The same 6.7-month payback against a four-year average life is an entirely comfortable position. Payback period only means something when you read it next to how long customers actually stay.

What this doesn't account for

The calculator assumes a customer pays the same amount every month from the start. Real contracts are messier: annual payment up front shortens payback dramatically, a free trial or onboarding period lengthens it, and a discounted first year delays it. If a customer pays twelve months in advance, the payback period is effectively immediate and this figure will badly understate your position.

It ignores expansion revenue and price rises, both of which shorten payback in practice, and it ignores the time value of money, which lengthens it. It also assumes the customer survives long enough to reach payback at all — on a cohort basis, some will not, which means the true blended payback across everyone you acquire is longer than this number suggests.

Finally, the answer is only as good as the acquisition cost you feed it. If your CAC was calculated without salaries in it, the payback period will look far healthier than it is. Work out the acquisition cost properly first, then come back to this.

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