Definition
Payback period is the time required to recover CAC from gross profit.
Why it matters
Payback shows how quickly you recover acquisition spend and how much cash growth requires.
Pricing implications
If payback is too long, pricing may need to increase or CAC must decrease.
Measurement tips
Use contribution margin when variable support costs are significant.
Checklist
- Calculate payback by segment and channel.
- Use consistent ARPA and margin assumptions.
- Compare payback to cash runway.
- Track payback after pricing changes.
- Separate payback from LTV for clarity.
- Avoid mixing one-time fees into ARPA.
- Review payback targets quarterly.
- Validate payback with finance data.