CAC payback calculator

How to use it

1. Add last quarter's sales and marketing spend, new customers won and average deal size.

2. Set your gross margin and annual revenue churn.

3. Add the net new ARR you added in the quarter, including expansion and less churn.

4. Read the four numbers, then use the last panel to test the next hire.

 

How the numbers work

CAC is all sales and marketing spend divided by new customers won. Payback is that CAC divided by the monthly gross profit one customer produces, so it answers how many months until they have repaid what they cost. Gross margin belongs in the formula because revenue is not cash you can spend again. LTV is the gross profit a customer produces over their life, which is their annual gross profit divided by your annual revenue churn.

The magic number is net new ARR in the period divided by the previous period's sales and marketing spend. Below 0.5 the engine is not ready for more money. Between 0.5 and 0.75 fix the engine before you feed it. Above 0.75 you have earned the right to spend more. The hire test applies the same logic to one AE: what they would add in year one after ramp, against what they cost.

 

Questions

What is a good CAC payback period?

The median across B2B SaaS is around 16 months, with the top quartile under 6 and the bottom quartile over 24. It should flex with deal size: under 12 months for small deals, 14 to 18 for mid-market, and 18 to 24 is defensible in enterprise where contracts are longer and retention is higher.

Should I use blended or paid CAC?

Blended. Count every cost of winning customers: sales salaries and commission, marketing salaries, advertising, events, agencies and the tools both teams use. Paid CAC flatters the number by hiding the people, and a board will judge you on the blended figure anyway.

Why is gross margin in the payback formula?

Because revenue is not money you can spend again. If a pound of revenue costs you thirty pence to deliver, only seventy pence is available to repay what you spent winning it. Leaving margin out makes payback look roughly a third shorter than it is.

What is the magic number?

Net new ARR added in a period divided by the sales and marketing spend of the period before it. It is a permission slip rather than a score: below 0.75 more spend usually buys less, and above 0.75 the engine is converting money into revenue well enough to justify feeding it.

I only have annual figures. Can I still use it?

Yes. Divide your spend, your new customers and your net new ARR by four and enter those. Every number here is a ratio, so the answers come out the same either way. The tool asks for a quarter because the magic number benchmark of 0.75 is defined on quarterly data.

Is a high LTV to CAC ratio always good?

No. Three to five is the healthy range. Above five usually means you are underspending and leaving growth on the table rather than running a brilliant machine, and it is often a sign that churn has been estimated too kindly.

My churn is nearly zero, so LTV is huge. Is that right?

It is arithmetically right and practically useless. Very low churn sends lifetime value towards infinity, so cap the life you assume at something you can defend, usually five to seven years, and lean on payback and the magic number instead.

 

More free sales tools

• Sales Hiring Plan: How many AEs and SDRs it takes to hit your ARR target, and when each has to start.

• Cost of a Sales Hire: The fully loaded cost of an AE, when they pay you back, and what a mis-hire costs.

• Know Your Pipeline: Work back from your target to the meetings, calls and demos you need.

• See all the free sales tools

 

Three people, three different CAC numbers?

We help revenue teams define these metrics once, wire them into the CRM and the board pack, and stop the monthly argument about whose figure is right.