Payback & Lifetime Value
How long a customer takes to earn back their cost, and a rough value over their lifetime.
In your head, jot if needed · no calculator why?
Opens at level 34.
Lesson and untimed practice
Read the full lesson and try each skill without a clock. About 3 minutes to read.
skills · practice stats
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Payback in months not tried yet
worked example
Acquisition costs $4,980 per customer, and each active customer contributes $510 a month. How many whole months does it take to earn back the acquisition cost?
Answer: 10
- $4,980 ÷ $510 ≈ 9.76, so it takes 10 whole months to earn back the cost, if the customer stays that long.
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Payback: contribution, not revenue not tried yet
worked example
It costs $3,420 to win a customer who pays $950 a month. Assume a 40% contribution margin. What is simple payback in months?
Answer: 9
- Contribution = $950 × 0.4 = $380 a month.
- $3,420 ÷ $380 = 9 months.
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Simple lifetime contribution not tried yet
worked example
A customer contributes $360 a month. Assume monthly churn is a steady 8%. Using contribution ÷ churn rate, what is the estimated lifetime contribution?
Answer: $4,500.00
- Average lifetime ≈ 1 ÷ 0.08 = 12.5 months; 12.5 × $360 = $4,500.
- It assumes churn stays steady forever and ignores discounting, so treat it as a rough estimate.
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LTV-to-CAC ratio not tried yet
worked example
Estimated lifetime contribution is $250 and acquisition cost is $100. What is the LTV-to-CAC ratio? Answer as a plain number.
Answer: 2.5
- $250 ÷ $100 = 2.5: each dollar spent winning a customer is expected to return $2.50 of contribution, if the lifetime estimate holds.
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