What it means
Customer acquisition cost (CAC) is what you spend on sales and marketing to win one new customer. CAC payback is how many months that customer has to stay before the gross profit they bring in covers that cost. It measures how long each new customer ties up your cash. A short payback lets you grow faster on the same cash, because each customer funds the next one sooner.
Start with CAC: sales and marketing spend for a period divided by new customers won in that period. Include salaries, commissions, ads, tools and agencies, and say whether you added overhead. Then divide CAC by the monthly gross profit from one new customer, which is their monthly revenue times your gross margin.
There's no standard formula. Some companies lag spend by a quarter when sales cycles are long, and some divide by revenue, which makes payback look shorter. It's a metric, so show the inputs.
In the first quarter Acme spent $120,000 on sales and marketing and won 20 customers, so CAC is $6,000. Each pays $1,000 a month at a 75% gross margin, which leaves $750 of gross profit a month. Payback is $6,000 ÷ $750, or 8 months. Dividing by revenue would have said 6 months.
Gross margin drives the bottom half of the formula. Self-serve and sales-led customers usually pay back on very different timelines, so investors like to see them split.
Why it matters. It shows whether growth pays for itself, and how much cash each new customer ties up. A short payback means you can grow faster on the same cash.
Try it with your numbers
Change any number. The working below updates as you type.
CAC payback = CAC ÷ (New MRR per customer × Gross margin)For the period: salaries, ads, tools, agencies.
In the same period.
CAC payback
8.0 months
How it’s worked out
- 1CAC$120,000 ÷ 20$6,000
- 2Monthly gross profit per customer$1,000 × 75.0%$750
- 3CAC payback$6,000 ÷ $7508.0 months
- 4Same, on revenue$6,000 ÷ $1,000, ignoring margin6.0 months
CAC payback is a metric with no single standard formula, not a GAAP figure. Dividing by revenue instead of gross profit makes it look shorter, so say which you used and which costs you counted.
Common questions
What costs go into CAC?
Sales and marketing costs for the period: salaries, commissions, ads, tools and agencies. Say whether you included overhead, and keep the choice consistent.
Should I use the same period for spend and new customers?
Many companies lag spend by a quarter for longer sales cycles. Either is fine if you say which you used.
What's a good CAC payback?
It depends on who you sell to. Investors commonly cite under 12 months as strong for self-serve and SMB, while enterprise sales often run 18 to 24 months or more. Compare against companies with the same motion and the same formula.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.