CAC payback period calculator

How it is worked out

• First-order margin = order value times your margin before ads.
• If that covers CAC, the customer pays back on the first order.
• If not, the rest is recovered from repeat orders, spread evenly over the first 12 months.
• Payback period = what is left to recover divided by the margin those repeat orders bring each month. It assumes repeat orders arrive evenly across the year.

Example: a $40 desk organizer store

• A new customer costs $24.00. The first order leaves $16.00, so $8.00 is still out.
• Customers place 1.8 orders in their first year. The 0.8 repeat orders bring $1.07 a month.
• The $8.00 comes back in 7.5 months. Until then, the cash spent on ads is tied up.
• At a CAC of $16.00 or less, the customer would pay back on the first order.

Questions

How do you calculate CAC payback period?

• Take what a new customer cost, minus the margin from their first order.
• Divide what is left by the margin their repeat orders bring each month.

What is CAC payback period?

• The time it takes a new customer to bring in enough margin to cover what you spent to get them.

What is a good CAC payback period for an online store?

• Shorter is better: the cash spent on ads is out until payback.
• Paying back on the first order means ad spend funds itself. Under 3 months is healthy for most online stores. Over 12 months ties up cash and depends on repeat orders that may not come.

Why does payback matter if LTV is high?

• LTV pays you later. Ad bills are due now.
• A store can be profitable on paper and still run out of cash while it waits.