Payback period

How long a customer takes to repay what you spent acquiring them.

Example

$200 CAC and $40/mo of gross profit means a 5-month payback.

Important

Payback governs cash, LTV governs value. A wonderful LTV with a 24-month payback can still bankrupt you.

Related terms

  • CAC (Customer Acquisition Cost) — The total sales and marketing spend to acquire one paying customer.
  • LTV (Lifetime Value) — The total gross profit you expect from one customer over the whole relationship.
  • Unit economics — The profit or loss on a single customer, once you strip out fixed costs.
  • Cash flow — The actual movement of money in and out of your bank account, as distinct from revenue you have earned but not been paid.

Lessons that explain it

  • CAC, LTV and payback — Whether each customer makes you money — and whether growing makes things better or just makes the hole bigger, faster. (15 min)

All 176 terms in the Founder glossary