---
title: What is Payback period?
url: https://markin.ai/glossary/payback-period
category: Revenue and ARPU metrics
aliases: CAC payback
---

# Payback period

> 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 ratio](https://markin.ai/glossary/ltv-cac-ratio), The LTV:CAC ratio divides expected customer lifetime value by fully loaded customer acquisition cost.
- [ARPU](https://markin.ai/glossary/arpu), ARPU, average revenue per user, is total revenue in a period divided by the average number of active users in that period.
- [Contribution margin per user](https://markin.ai/glossary/contribution-margin-per-user), Contribution 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 value](https://markin.ai/glossary/lifetime-value), Lifetime value is the discounted margin a business expects from a customer over the whole relationship.

## Go deeper

- [ROI calculator](https://markin.ai/roi-calculator), See payback move with ARPU.
- [Fintech](https://markin.ai/industries/fintech), Where payback discipline is tightest.

Source: https://markin.ai/glossary/payback-period