Why payback is a cash constraint
Payback asks how long it takes to recover CAC using gross profit from the customer. Even if LTV is high, long payback can be fatal if you run out of cash before the cohort pays back.
Early churn is the main lever
- Early churn reduces the number of customers who generate month 6+ value.
- Improving activation/onboarding can reduce payback faster than improving steady-state churn.
- Expansion compounds on the customers you keep, so retention improvements amplify expansion.
How to use a payback curve
- Model optimistic/base/conservative retention scenarios.
- Track payback by channel and plan (cohorts differ).
- Pair payback with runway to decide how aggressively you can scale acquisition.
Common mistakes
- Using revenue instead of gross profit (ignores margin and variable costs).
- Using blended churn rates across segments.
- Ignoring expansion and downgrades when revenue per account changes materially.