Digital Lexicon Hub

The number of months a company needs for the gross margin from a new customer to repay the cost of acquiring that customer.

Payback shows how long cash stays tied up in each new customer, which affects how fast a company can reinvest in growth without new funding and whether a channel or segment is worth scaling.

A SaaS firm spends $120,000 on sales and marketing in a quarter and wins 40 customers, so CAC is $3,000. With $250 MRR per customer at 80% gross margin, payback is $3,000 / ($250 x 0.8) = 15 months.

Companies calculate it differently, with or without gross margin, expansion revenue or onboarding costs, so benchmarks are hard to compare. It also ignores churn: a customer who leaves before month 15 in the example never pays back.

The gross-margin version divides Customer Acquisition Cost (CAC) by monthly recurring revenue per customer multiplied by gross margin percentage. A simpler version divides CAC by Monthly Recurring Revenue (MRR) per customer, which shortens the result because it ignores the cost of serving the customer. A company-level variant divides a period's sales and marketing expense by new MRR times gross margin. Using Gross Profit Margin (GPM) ties payback to the cash actually recovered.