The payback calculation used a margin you don’t earn in year one

CAC payback is almost always computed with a steady-state gross margin, and new customers rarely cost what mature ones do.

By Steve 5 min read
Abstract bridge artwork for The payback calculation used a margin you don’t earn in year one

A business with a clean acquisition model can usually tell you its payback period to one decimal place. Cost to acquire a customer, divided by monthly contribution, expressed in months. The number is often reassuring: under a year, comfortably inside the average customer’s life, so the growth is self-funding in principle. Then the bank balance behaves as though none of that is true. Good months tighten cash rather than loosening it, and the finance conversation turns into an argument about seasonality. The arithmetic is usually correct. The margin fed into…

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