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CAC Payback Period: Formula, How To Calculate, & Importance
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What Is CAC Payback? “CAC Payback is the period of time in which you earn back the cost of acquiring a new customer through the revenue that customer brings to your business.” If you spend a lot on acquiring each new customer you will have to attract high-paying customers or wait months before that customer brings that amount of revenue to your business.
To calculate the CAC payback period you will need three pieces of information: “Sales and marketing expense: the cost spent on attracting customers to your company in a period” New Monthly Recurring Revenue (MRR): The new MRR that was brought in during that period. Some companies choose to use net new MRR instead, to account for churn during the period. You also could choose to include or exclude expansion MRR from existing customers in the calculation – was your marketing campaign directed exclusively at new customers, or was some of the marketing expense directed at upselling existing customers as well? What you include or exclude from CAC payback calculations depends on your unique spending and how precise you need your calculation to be.
Sales and marketing expense: the cost spent on attracting customers to your company in a period “New Monthly Recurring Revenue (MRR): The new MRR that was brought in during that period.” Gross Margin: What percentage of the new MRR is profit to the company. Some of the MRR is going to go to overhead, and for this calculation we need to get rid of that. CAC payback only looks at how much profit the customer will bring to the business, not total revenue.
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