Payback period
Also called: CAC payback
Payback period is the time taken for the gross margin generated by a customer to repay the cost of acquiring them. It is measured in months and is the cash counterpart to LTV:CAC: a good ratio with a long payback still strains the balance sheet.
How it is calculated
Payback months = CAC / (ARPU x Gross margin)
Use contribution margin, not revenue. Payback computed on revenue understates the real recovery time.
Why it matters for ARPU
Every point of ARPU shortens payback proportionally, which converts a growth improvement directly into working-capital headroom.
Related terms
LTV:CAC ratioThe LTV:CAC ratio divides expected customer lifetime value by fully loaded customer acquisition cost.ARPUARPU, average revenue per user, is total revenue in a period divided by the average number of active users in that period.Contribution margin per userContribution margin per user is revenue per user minus the variable costs of serving that user: delivery, payment fees, support, content or bandwidth, and any incentive granted.Lifetime valueLifetime value is the discounted margin a business expects from a customer over the whole relationship.