Your CAC payback period can help you make better decisions about your company’s growth. It helps you detect overspending, identify issues with customer retention and churn rates, find the best pricing strategies, and evaluate the best marketing strategies.
Costs of business growth
The upfront cost of acquisition for new customers is a significant part of the costs required for your company’s growth. A longer CAC payback period means higher growth costs and potentially slower growth. Conversely, shorter payback periods suggest lower growth costs. To maintain a sustainable trajectory, it’s essential to ensure that your CAC doesn’t outpace company growth.
Instances of overspending
Tracking your CAC payback period (especially when segmented by different customer acquisition channels) can help you identify overspending. For example, if you observe a significant increase in conversion rates and a corresponding rise in new customers, but also notice a disproportionate surge in acquisition costs, it signals a need to investigate and pinpoint the source of excessive marketing expenses. Failing to proactively address such scenarios could harm your payback period and hinder your ability to recover your investment.
Retention and churn issues
The CAC payback period metric also prompts you to think about your churn rate. If you consistently experience customer churn before the end of your CAC payback period, your business won’t be viable. You need to make sure your retention rates don’t undermine the success of your business. Tracking the CAC payback period helps you put these rates into perspective.
Accuracy in pricing strategy
If your CAC payback period is significantly longer than benchmark data recommends, this suggests your prices are too low. But that doesn’t just mean you need to increase your prices; it means you need to adjust your pricing strategy. This may mean shifting from annual subscriptions to monthly, or launching a new multi-tier pricing model. The right answer varies based on your business model and your customers.
Marketing campaign effectiveness
The results of your CAC payback period calculations will inform the effectiveness of your marketing campaigns—namely, your ROI and campaign profitability. This will shed light on your overall marketing strategy, enabling CMOs to identify best practices in high-performing campaigns, budget marketing expenses towards more of those activities and forecast future conversions and revenue.