Build the finite contribution schedule
Prerequisites
- Align CAC and customer contribution to the same currency and indirect-tax basis. (not complete)
- Choose and name the period unit and finite horizon. (not complete)
- State contribution per retained customer for each period. (not complete)
- Enter retention, ramp and payment delay only as documented scenario assumptions. (not complete)
- Define the costs excluded from contribution and cash timing. (not complete)
- Start with aligned CAC for the acquired customer or cohort.
- Construct a finite period-by-period retained-customer contribution sequence.
- Apply ramp and payment delay before adding each period to cumulative contribution.
- Find the first period whose cumulative contribution reaches or exceeds CAC.
- Interpolate inside that crossing period when the tool contract permits a fractional result.
- If no crossing occurs, report not recovered and preserve the unrecovered amount.
- Test shorter retention, slower ramp or later payment before using the scenario.
payback = completed periods before crossing + (CAC - cumulative contribution before crossing) ÷ contribution in crossing period
- CAC
- Aligned acquisition cost for the customer or cohort (currency units per customer) — business record or CAC planner output
- cumulative contribution before crossing
- Contribution recovered through completed periods (currency units per customer) — calculated output
- contribution in crossing period
- Retained, ramped and payment-adjusted contribution in the crossing period (currency units per customer per chosen period) — calculated scenario output
- payback
- First interpolated point where cumulative contribution reaches CAC (chosen periods) — calculated output
Do not apply the interpolation formula when the finite sequence never reaches CAC.
Worked example: CAC 120, contribution 50 and retention 80%
Invented neutral scenario with a six-period horizon and no ramp or payment delay. Retention is an assumption, not a forecast.
| Chosen period | Retained share | Period contribution | Cumulative contribution | Recovery state |
|---|---|---|---|---|
| 1 | 100% | 50 | 50 | Not recovered |
| 2 | 80% | 40 | 90 | Not recovered |
| 3 | 64% | 32 | 122 | Crossed CAC |
Set a decision limit from your own constraints
There is no universal acceptable payback period. Set a review limit only after aligning the acquisition cohort, retained contribution sequence, ramp, payment delay and the amount and duration of cash exposure the business can tolerate.
| Checkpoint | What to define | Review trigger |
|---|---|---|
| Cohort and CAC | Customers and acquisition costs from the same channel and acquisition period | Cost allocation or cohort membership changes |
| Retained contribution | Contribution after the declared delivery-cost boundary for each retained period | Observed contribution or retention falls outside the scenario |
| Ramp and payment delay | When contribution is earned and when its cash is expected to arrive | Ramp slows or receipt dates move later |
| Cash tolerance | Maximum acquisition exposure and finite recovery horizon the business chooses to test | The downside case breaches that tolerance or remains unrecovered |
Check boundaries before interpreting payback
- Using revenue instead of contribution available to recover CAC.
- Calling every period a month when the records use another cadence.
- Projecting retention forever or hiding an unrecovered finite horizon.
- Ignoring ramp, payment delay, financing or cash-timing differences.
- Treating a shorter result as universally good without evidence or cash-capacity context.
Find the first cumulative recovery period without extending the horizon
CAC payback is the first period in which cumulative aligned cohort contribution reaches the cohort acquisition cost. It is not the LTV/CAC ratio, and a model must return “not recovered within horizon” rather than assume contribution continues indefinitely.
| Period | Base aligned contribution | Base cumulative contribution | Downside cumulative contribution |
|---|---|---|---|
| Cohort CAC | 3,000 CU | Recovery threshold = 3,000 CU | Same 3,000 CU threshold |
| Period 1 | 1,200 CU | 1,200 CU | 1,200 CU |
| Period 2 | 1,000 CU | 2,200 CU | 2,200 CU |
| Period 3 | 900 CU | 3,100 CU: first recovery period | 600 CU; 2,800 CU cumulative |
| Horizon result | Recovered in period 3 | 100 CU above entered CAC | Not recovered within three periods |
Payback limits that must remain visible
- Do not replace missing later-period evidence with an infinite retention assumption. (not complete)
- Do not mix customer counts or contribution definitions between periods. (not complete)
- Do not treat attributed contribution as causal proof of the acquisition channel. (not complete)
- Do not call the first recovery period a universal acceptable limit. (not complete)
- Carry receipt delays and cash tolerance into a dated cash workflow when they affect the decision. (not complete)
Calculate finite cumulative recovery
- CAC Payback Planner
Find when retained customer contribution recovers acquisition cost
- Customer Lifetime Value Planner
Estimate bounded contribution value across a chosen retention horizon
- LTV to CAC Ratio Planner
Compare bounded contribution LTV with entered acquisition cost and target ratio
CAC payback questions
- Should payback use revenue or contribution?
- Use contribution available after the stated delivery and variable-cost boundary. Revenue alone overstates what can recover CAC.
- Is payback always measured in months?
- No. Use the period cadence of the aligned contribution sequence and label it explicitly.
- What if CAC is not recovered?
- Report not recovered for the chosen finite horizon and preserve the unrecovered amount. Then test the assumptions rather than inventing a later crossing.
Methodology source
- CAC Payback methodology — Margin101: Product-owned finite sequence, retention, ramp, delay and interpolation logic.
- Customer Acquisition Cost methodology — Margin101: Alignment of the CAC numerator and acquired-customer denominator.
Measure cost, value and recovery separately
- CAC Payback Planner
Find when retained customer contribution recovers acquisition cost
- Customer Acquisition Cost Planner
Measure loaded and marginal customer acquisition cost across aligned channels
- LTV to CAC Ratio Planner
Compare bounded contribution LTV with entered acquisition cost and target ratio