Strategy and goals
Payback period
How long it takes for a new customer's margin to repay what it cost to win them.
What it is
Payback turns the LTV to CAC ratio into time. Two businesses with the same ratio can feel very different if one is repaid in weeks and the other in years.
Why it matters
For lead generation and e-commerceCash is spent on the ad today and returned over months. The payback period decides how much growth a company can fund from its own revenue.
How it is measured
Formula
Payback period = CAC / monthly margin per customerDivide acquisition cost by the margin a customer brings each month.
A common mistake
Using revenue instead of margin, which shortens the payback on paper and not in the bank.