Payback period

Payback period is the months-of-contribution a customer must produce to pay back their acquisition cost. Formula: CAC ÷ (ARPU × gross margin). Under 6 months is fast; 6-12 months is healthy; 12-24 is the industry average for mid-market SaaS; 24-36 is slow and capital-intensive; beyond 36 months the business is effectively an investment vehicle waiting on long-tail retention. Payback period is the metric investors pay closest attention to because it determines cash-flow reality — a company with excellent LTV:CAC but a 36-month payback still needs to fund 36 months of contribution gap per customer. Lifecycle programs can shorten payback by increasing early-stage contribution (upsells inside the payback window) or by moving the churn curve to keep more customers alive through the window.