Your guide to CAC payback period

👀 Are you making one of these mistakes?

👋 Hi, it’s Kyle. Welcome to another edition of Growth Unhinged, my newsletter that explores the unexpected behind the fastest-growing startups. 

As SaaS companies orient themselves toward efficient growth, CAC payback period has become a guiding KPI for startups and public SaaS companies alike. But CAC payback is one of the most misunderstood SaaS metrics and can be especially misleading for PLG companies (as I unpacked previously). Keep reading for a primer on CAC payback and how to avoid common mistakes.

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CAC payback period – the amount of time it takes (in months) to recoup the costs of acquiring a new customer – used to be one of those wonky SaaS metrics VCs threw around when discussing an investment. But more and more, founders and operators are getting in the weeds on CAC payback.

CAC payback is a fantastic metric mostly because it’s better than the alternatives. It’s a more sophisticated metric than CAC on its own, which ignores customer quality – whether they actually buy, spend more over time, how much they spend, and so on. And it beats LTV:CAC too since LTV can be limitless in high retention SaaS businesses.

Knowing what metric you should use is just half the battle. You also need to know what “good” looks like. For this, we can turn to our 2022 SaaS Benchmarks Report, which collected data from 660 private SaaS companies. (Full disclosure: the self-reported benchmarks skew somewhat lower than what I usually see when working with portfolio companies; for more on why that might be, keep reading.)

Unfortunately, there’s no singular answer.

“Good” varies a ton based on who you’re selling to. Smaller companies have shorter buying cycles (lower CAC), but target customers are generally less committed to your product and may be quicker to churn (lower NDR, which will get to a bit later). The opposite is true for selling upmarket. An enterprise-focused company might see 110%+ NDR — rare for SMB SaaS — which may make spending more on customer acquisition both efficient and sensible.

In theory, if your CAC payback period is healthy, it should be easier to attract capital since you can quickly turn $ into $$$. And investors like that!

All this is good news for sure, but it’s not all roses. Because, despite your best efforts, you might still be getting CAC payback period wrong. Here’s what to avoid.

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📊 Believing in a single gold standard for CAC payback.