Glossary / Payback Period
Payback Period
Payback period is how long it takes a new customer to pay back what they cost to acquire. Divide acquisition cost by the profit that customer generates per month.
Work out yours
Payback period = CAC ÷ monthly gross profit per customer
Under a month
A customer pays back what they cost before the first month ends.
Why it matters
Payback period is a cash flow question, not a profit question. A business can have excellent unit economics and still run out of money, because the cash goes out to win the customer long before it comes back. Shorter payback means you can grow faster on the same bank balance.
Where people get it wrong
Use gross profit, not revenue. Paying back a 500 dollar acquisition cost out of revenue looks fast and out of profit looks honest.
If this number is not where you want it
A large part of payback is simply how fast you collect. Businesses that invoice on paper and wait are financing their own growth for no reason.
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See what it would take, free →About Invoicing and Payments SetupRelated terms
- Customer Acquisition Cost (CAC)Customer acquisition cost is what you spend, on average, to win one new customer.
- LTV to CAC RatioThe LTV to CAC ratio compares what a customer is worth to what they cost to win.
- Gross MarginGross margin is the share of revenue left after the direct cost of delivering the work.
- Break-Even PointYour break-even point is how much you must sell to cover all your costs.
Common questions
+ What is a good payback period?
Under twelve months is generally healthy for a small business. Under three is excellent and means you can reinvest almost immediately.
Part of the small business glossary. All six free calculators are here.