PP – Payback Period

Definition

Payback Period indicates how many months it takes for a new customer to generate enough revenue to cover their acquisition costs (CAC). A short payback period is crucial for cash flow health as it determines how quickly invested money becomes available for further acquisition.

Formula

Example

A SaaS company has a CAC of €600, monthly revenue per customer of €100, and a gross margin of 80%. The payback period is 600 / (100 × 0.8) = 7.5 months. For SaaS, a payback period under 12 months is considered good.

Optimization Tips

Lower CAC through more efficient marketing channels. Increase monthly ARPU through upselling or pricing optimization. Offer annual subscriptions with upfront payment to improve cash flow. Focus on customer segments with shorter payback periods.