payback period

Also called: payback, CAC payback, CAC payback period

How long until a cohort's cumulative gross profit per user covers its acquisition cost.

The payback period is the age at which a cohort has earned back what it cost to acquire. On the LTV curve it's the point where cumulative gross profit per user crosses the CAC line:

$\text{payback month} = \min \{\, t : \text{LTV}_t \ge \text{CAC} \,\}$

Both sides must use the same denominator: LTV per install against cost per install, or LTV per payer against CAC per payer. If the curve crosses the line partway through a month, you can interpolate linearly within that month.

Payback matters because it's about cash and risk, not just profitability. A channel with a great 24-month LTV but a 20-month payback ties up money for almost two years, and the forecast for months 13–24 is the least reliable part. Many consumer subscription apps set a payback target (for example, "within 6 or 12 months") and cut channels that miss it, even if their projected LTV looks fine.

The subscription-business shortcut divides CAC by monthly gross profit per customer. It ignores churn, so it's always too optimistic for a consumer app: it assumes every payer stays until the cost is covered. Two more details change the answer: yearly plans paid upfront shorten cash payback, while refunds and cancellations before renewal can lengthen it; and a cohort's payback should be read by channel, because blending a free channel into it makes paid spend look faster to recover.

Example

Halves paid social in June: CPI $2.50. Cumulative gross profit per install of that cohort:

Month	1	2	3	4	5	6	7
Added in the month	$0.60	$0.45	$0.40	$0.35	$0.30	$0.28	$0.24
Cumulative	$0.60	$1.05	$1.45	$1.80	$2.10	$2.38	$2.62

The curve is below $2.50 at the end of month 6 ($2.38) and above it at the end of month 7 ($2.62). Within month 7 the cohort still needs $2.50 − $2.38 = $0.12 of the $0.24 it earns that month: 0.12 ÷ 0.24 = 0.5. Payback ≈ 6.5 months.

If Halves' target is payback within 6 months, this channel misses it by about two weeks. Theo can either lower CPI to at most $2.38 (the month-6 value) or improve early monetization, for example by showing the paywall at a better moment.

Common mistakes

Different denominators. LTV per payer against cost per install gives a payback that's far too short.
Using the churn-free shortcut. CAC ÷ monthly profit per customer assumes nobody leaves; read the cohort curve instead.
Revenue instead of gross profit. The store commission alone can add months to the real payback.
Blended cohorts. Organic and invite users with zero cost make a paid channel look like it pays back faster.
Confusing cash and revenue. Yearly plans bring cash early; refunds and non-renewals take some of it back later.

Learn it in the course

CAC, payback and ROI · Judge a paid channel by the cohort it buys: CAC, payback period and cohort ROI at a stated age, and why a month's profit divided by that month's spend flatters ads.