What is a CAC Payback Period?
A CAC Payback Period is the period of time it takes a company to offset the Customer Acquisition Cost of one of their deals. In other words, it is the break-even point for acquiring a customer.
Why do CAC Payback Periods matter?
The CAC Payback Period is a key indicator of a company’s growth-engine efficiency. A shorter period signifies a sustainable business model with consistent profitability. However, a longer one may highlight inefficiencies – either in acquisition strategy, pricing model, onboarding process, or customer value.
General guidelines for interpreting a CAC Payback Period:
While benchmarks vary across industries and business models, here are general guidelines for SaaS companies:
- Around 12 months: Generally considered strong, especially for mid-market or enterprise-focused SaaS.
- 7 to 9 months: Indicates highly efficient customer acquisition and monetization.
- Less than 6 months: Typically achieved by companies with strong product-market fit and operational streamlining.
It’s important to interpret CAC Payback Period in context, factoring in customer lifetime value (LTV), retention rates, contract structures (monthly vs. annual), and internal profitability targets.