Definition
Payback period is the time needed to recover an investment's cost from cash flows. In SaaS, 'CAC payback' is a specific variant.
Formula
Payback period = time until cumulative cash flow >= initial investment
Example
If you invest $100k and get $30k per year, simple payback is a bit over 3 years (ignoring discounting).
How to use it
- Use discounted payback when time value of money matters (riskier or longer projects).
- Use payback as a liquidity/risk lens, not the primary value metric (NPV is usually better).
Common mistakes
- Using simple payback without discounting for long-duration projects.
- Ignoring cash flows after payback (can favor low-upside projects).
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Payback Period (finance)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., Discounted Payback Period Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Discounted payback period: definition, formula, and how to calculate) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Discounted Payback Period Calculator: Estimate discounted payback period using a discount rate (and compare to simple payback).
- Investment Decision Calculator: Evaluate an investment using NPV, IRR, discounted payback, and profitability index from simple cash flow assumptions.
- Blended CAC Calculator: Compare paid-only CAC vs fully-loaded (blended) CAC, and estimate payback at a target margin.
- Target CPA from LTV Calculator: Translate LTV and contribution margin into a target CPA (and break-even CPA) for paid acquisition.
- Unit Economics Dashboard Calculator: Compute a unit economics snapshot: gross profit LTV, CAC payback, LTV:CAC, and break-even targets from a few inputs.
Guides
- Discounted payback period: definition, formula, and how to calculate: Discounted payback explained: how it differs from simple payback, the formula, and when discounted payback is the right metric.
- Investment decision metrics: NPV vs IRR vs payback vs PI: A practical guide to investment decision metrics: when to use NPV, when IRR misleads, and how payback and profitability index fit in.
- CAC vs CPA: definitions, formulas, and when to use each: CAC vs CPA explained: what each metric measures, how to calculate them, and how to translate CPA into CAC for planning.
- LTV:CAC ratio: how to interpret the ratio (and avoid mistakes): Learn what LTV:CAC tells you, rough benchmarks, and how churn and payback change what 'good' looks like.
- Blended CAC vs paid CAC: when each is the right metric: CAC depends on what you include. Learn paid-only CAC vs fully-loaded blended CAC, how to avoid mismatches, and how to connect CAC to payback.