Cash Payback: The One SaaS KPI You Should Obsess About

Published in
9 min readJan 12, 2021


When we talk about SaaS in general, and SaaS metrics in particular, it usually does not take long until the (infamous) term “LTV/CAC ratio” comes up. This may be evolving though, as many experts and enthusiasts — including ourselves—within the SaaS community have been pointing out this indicator’s limitations.

As new approaches arise, in the likes of the Natural Rate of Growth engineered by OpenView or the Core Ratio championed by, we felt we could humbly contribute to the conversation, based on our experience here at Loomly.

Ever since we started the company in 2016, we have analyzed our growth through the lens of many metrics, but none proved to be as practical, accurate and insightful as Cash Payback. In this article, we will tell you how to calculate it, why it is a relevant metric and what you can learn from it.

Acknowledgement: as a sanity check, we submitted this article to subject matter experts in order to challenge — and consolidate — our reasonings and findings. We would like to address a warm thank you to Tom Tunguz, David Skok, Rob Belcher, Kyle Poyar & Ilia Markov for their incredible feedback in this process. We are also immensely grateful to Luc-emmanuel Barreau, Partner at Red River West, for his invaluable guidance and hands-on contribution: this article, and most importantly the thought process behind it, would simply not have been possible if it wasn’t for him.

How To Calculate Cash Payback

Simply put:

Cash Payback measures the time it takes to recover Sales & Marketing Expenses through Cash Receipts.

In practice, here is how to calculate Cash Payback, step by step:

  • Step 1: in a spreadsheet, build a cohort analysis layout, displaying for each cohort the amount of Sales & Marketing Expenses spent on acquiring that cohort, and then a month-by-month breakdown of the Cash Receipts generated by that cohort:
For the sake of simplicity, the template above assumes a steady amount of monthly S&M Expenses ($100) and the same revenue function for every cohort ($50 the first month, then $10 for every subsequent month): your table will most likely not look as consistent.

Note 1: Sales & Marketing Expenses include salaries of your in-house S&M team, invoices from S&M contractors (copywriter, graphic designer, PR agency, translator, etc.), paid marketing budget and S&M tools.

Note 2: in Stripe, Cash Receipts are equal to Net Volume + Fees; in ChartMogul, Cash Receipts are equal to Net Cash Flow + Transaction Fees. The reason why you want to reintegrate fees into your calculation in Step 1, is because you will be removing them in Step 4 when factoring in your Gross Profit Margin Rate.

  • Step 2: convert month-by-month data points into cumulative sums that show the total revenue each cohort has been generating over time:
Note how each revenue row incrementally adds up the revenue for that month to the revenue of all previous months.
  • Step 3: translate that total revenue as a percentage of the Sales & Marketing Expenses spent to acquire the cohort in the first place:
Normalizing data allows us to compare apples to apples down the line.
  • Step 4: adjust calculations for CoGS by factoring in Gross Profit Margin (i.e. your Gross Profit Margin Rate):
Important: Gross Profit Margin applies to the month of cash collection, not the month of cohort creation. In the table above, the Gross Profit Margin Rate is 90%.
  • Bonus (optional): apply some color-coded conditional formatting to spot patterns and anomalies at a glance:

In the example above, we see that the Cash Payback is equal to 8 months, since Cash Receipts recoup more than 100% of the monthly S&M Expenses on Month 8.

Note: once again, real-world data will likely be less consistent from one month to another, requiring you to look at all cohorts to get an idea of what your average Cash Payback is, ideally giving a higher weight to more recent cohorts compared to older ones.

Now that we know how to calculate Cash Payback, we are in a great place to understand why it is such a reliable and telling indicator to measure a SaaS business’s performance.

Why Cash Payback Is An Insightful Metric

Cash Payback is an insightful metric because it checks all the boxes of a modern framework, if for no other reasons than the type of data taken into account in its computation:

  • Actual data: if you think about it for a moment, most metrics in SaaS are abstractions. CAC is a proxy for the price of acquiring a customer, MRR is an accrual representation of revenue and LTV is at best an estimate of future business. As a result, a lot is lost in translation. In contrast, Cash Payback relies on the volume of funds actually coming in and out of your bank account. It does not get more down to earth — and reliable — than that.
  • Time-series data: another limitation of traditional SaaS KPIs is a lack of subtlety. When you monitor the ARPA or the churn rate of your entire customer base, as a whole unit, you blindly treat all your customers the same way, losing valuable signals in the noise. Instead, Cash Payback inherently functions as a cohort analysis: you segment customers based on periodic intervals (months, quarters, years). Then, you look at their respective evolutions over time to observe lifecycle patterns and take action accordingly.
  • Normalized data: last but not least, a major shortcoming of many legacy SaaS KPIs is a built-in assumption of stationarity, regardless of users’ signup dates, changes in your pricing model or growth rate, or even massive shifts in the economy. In contrast, because Cash Payback operates on a normalized basis, it allows you to measure the impact of such specific factors on your performance.

For icing on the cake, we can inject two additional layers of data in the mix to uncover more insights:

  • Financial data: calibrating Cash Receipts through the lens of Gross Profit Margin is not just a sound business practice (after all, you do want to be mindful of your “costs of doing business”). In fact, it is the only way to truly measure the performance of your company against benchmarks, since business models and cost structures vary widely from one organization to another.
  • Attribution data: if you are tracking ROI through attribution modeling — as you should — then you are capable of correlating expenses and revenue, for any given cohort. This takes Cash Payback to new heights regarding granularity and reliability (see “2. Which channel is the most efficient? below).

Note: David & rob insightfully brought to our attention that one way to introduce even more nuance to a Cash Payback analysis is to run it in parallel with a Months To Recover CAC analysis. The former tells you how good you are at collecting cash, while the second reveals the unit economics of your business: both work hand in hand, just like a cash flow statement and a P&L do.

Armed with the above theoretical background, we are ready to look at Cash Payback analysis’s practical applications to reveal insights for your SaaS business.

What You Can Learn From Cash Payback

Cash Payback can answer — at least— five important questions about a SaaS business:

1. How efficient is your company over time?

By measuring Cash Payback over time, cohort by cohort and month by month, you can identify patterns and red flags. Example 1 highlights the impact of a temporary shock while Example 2 illustrates seasonality:

Example 1: Cash Payback for 2020 of a SAAS Company that was temporarily impacted by a pandemic-induced panic wave in March, before business resumed as usual until the end of the year.
Example 2: Cash Payback profile of a B2B SAAS model, where buyers may be on vacation in the summer and towards the end of the year (driving sales down) but have higher needs and larger budgets at the beginning of the year and around back-to-school time (driving sales up).

2. Which channel is the most efficient?

By comparing Cash Payback between channels, you can determine the best way to reach, acquire and retain your customers. You can apply this to arbitrate between a self-serve and a sales-enabled model (or, of course, a hybrid model) as illustrated by Example 3 and Example 4, respectively:

Example 3: Cash Payback profile of a self-serve product line, available through a no-touch/low-touch sales cycle, with a high gross profit margin and low average order value.
Example 4: Cash Payback profile of sales-enabled product line, available through a high-touch sales cycle, with a lower gross profit margin and higher average order value (note: annual contract renewals will boost Cash Payback on Month 13, which is not shown here).

Note: the numbers above are provided for illustration purposes only, to amplify potential differences between two data sets. No argument is being made in favor of one sales approach over the other in general.

3. Which pricing option is the most efficient?

By splitting your Cash Payback analysis by plans or billing cycles, you can determine which area of your pricing is the most efficient. As an example, this allows you to compare whether it is more cash-efficient to acquire customers who pay monthly or yearly. The answer may not be as apparent as you may intuitively think, per Example 5 and Example 6:

Example 5: Cash Payback profile of a product line sold through yearly contracts only, where the bulk of payments is made upfront on the first month, with only incremental payments related to upgrades throughout the year (note: annual contract renewals will boost Cash Payback on Month 13, which is not shown here).
Example 6: Cash Payback profile of a product line sold through monthly contracts only, where payments are made progressively across the year (with a higher price than yearly contracts, offered with a discount to reward customer commitment).

Note: the numbers above are provided for illustration purposes only, to amplify potential differences between two data sets. No argument is being made in favor of one pricing approach over the other in general.

4. How scalable are your operations?

By looking at Cash Payback as you scale your sales and marketing efforts, i.e. when you increase S&M spend (no matter where you put the money), you can clearly see whether you are generating increasing, steady or diminishing returns, as illustrated respectively by Example 7, Example 8 and Example 9, and determine the scalability — or lack thereof— of your model:

Example 7: Cash Payback profile showing diminishing returns in terms of Cash Receipts as S&M Expenses increase, signaling room for improvement on the operational front and/or market limitations.
Example 8: Cash Payback profile showing steady returns in terms of Cash Receipts as S&M Expenses increase, illustrating operations that scale up smoothly.
Example 9: Cash Payback profile showing increasing returns in terms of Cash Receipts as S&M Expenses increase, suggesting the existence of a growing moat for the company (think: brand, network effect, economies of scale, etc.)

5. How are you doing compared to other companies?

Whether you are a founder comparing notes with another startup leader, a CEO pitching investors — or even an investor looking at an investment opportunity—the normalized nature of Cash Payback allows you to compare apples to apples, per Example 10 and Example 11. These represent two companies with very different models on a comparable basis. Put simply: for a given amount of capital, Cash Payback will tell you how fast your company can scale. Philosophically, this is very close to the concept of IRR (Internal Rate of Return):

Example 10: Cash Payback profile of a company with lower S&M Expenses and a higher Growth Profit Margin Rate.
Example 11: Cash Payback profile of a company with higher S&M Expenses and a lower Growth Profit Margin Rate.

Note: Kyle mentioned to us that Cash Payback was particularly helpful for bootstrapped founders since it ties back to generating cash to fund a business. At Loomly, we believe that VC-backed companies can take advantage of Cash Payback to optimize their business model for cash as a way to leverage their product to fund growth in a non-dilutive way. While VC-backed startups may not have to worry as much as bootstrapped startups about how much money they have in the bank, non-dilutive funding—a rising trend these days, including in Silicon Valley— unlocks additional resources to invest even more in their product and fuel their growth flywheel. In a way, Cash Payback is a “financial PLG hack”.

Wrapping Up

Cash Payback is a useful, accurate and insightful metric that will give you an edge in the way you pilot your company.

If you are already answering some of the questions addressed by this powerful KPI through other approaches (such as Months To Recover CAC), it may be worth running through one cycle of analysis of your Cash Payback, as a sanity check.

You never know what you may uncover while looking at your numbers from a different angle.