How to calculate CAC and CAC payback

CAC is what it costs you to win one paying customer. CAC payback is how many months that customer takes to earn it back. Together they tell you whether growth pays for itself or eats your cash. Here are the formulas with one example worked through.

The example company below is made up so the math is easy to follow.

The example

Last quarter you spent $6,000 on ads and $3,000 on a part-time marketer, and won 30 new paying customers. Each pays $50 a month and your gross margin is 80%.

CAC (customer acquisition cost)

CAC = sales and marketing spend in a period ÷ new customers won in that period. ($6,000 + $3,000) ÷ 30 = $300.

Include everything you spent to get customers: ads, tools, contractors and the share of salaries spent on sales and marketing. Leaving out people costs is the easiest way to make CAC look better than it is.

CAC payback period

CAC payback (months) = CAC ÷ (monthly revenue per customer × gross margin). $300 ÷ ($50 × 0.8) = $300 ÷ $40 = 7.5 months.

Use gross margin, not revenue. Hosting, payment fees and support come out of every dollar, so revenue alone makes payback look shorter than it really is.

LTV:CAC

LTV = monthly revenue per customer × gross margin ÷ monthly churn. At 4% monthly churn, $40 ÷ 0.04 = $1,000. So LTV:CAC = $1,000 ÷ $300, about 3.3 to 1.

A common rule of thumb is 3 to 1 or better. Payback and churn are linked: if customers usually leave before the payback month, you lose money on each one. More on that in how to calculate churn rate.

Blended vs paid CAC

Blended CAC divides all spend by all new customers, including the ones who found you through word of mouth. Paid CAC only counts customers from paid channels. Blended is usually lower and can hide a channel that's losing money, so work it out per channel when you can.

Common mistakes

• Leaving salaries and tools out of spend.
• Counting free trials or signups instead of paying customers.
• Comparing spend and customers from different months. Ads often take a few weeks to turn into customers, so a quarter is steadier than a month.

Run your own numbers

The free runway and LTV calculator works out LTV:CAC and payback for your inputs. The SaaS metrics formulas page covers ARPU, MRR, burn and runway.

Want the full model?

The Founder Unit Economics Pack ($39) is an Excel and Google Sheets workbook that ties CAC and churn to LTV, a 12-month MRR projection and runway, with side-by-side scenarios.