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CAC Payback Period: Formula, How To Calculate, & Importance
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Next steps “It also helps to consider how much value a customer brings over their entire relationship with your business.” You can also check out my series of articles on SaaS and growth metrics like calculating ACV, ARR, NRR, magic number ratio, and more. If you’re diving into NRR, it’s also helpful to understand how it differs from gross retention.
How To Calculate CAC Payback Period “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
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.