Payback Over Ratios

23 Dec, 2025

LTV:CAC ratios make good slides. Payback period determines whether you can actually grow.

The constraint

LTV:CAC of 4:1 looks healthy on a board slide.

Six months later growth has stalled because you can’t afford to hire salespeople. The ratio was fine. The payback period was 24 months.

Every new customer consumed two years of cash before breaking even. Growth became a capital problem, not a capability problem.

The math

Payback period determines how fast you can grow.

CAC payback of twelve months, doubling your customer base: you need twelve months of CAC spend sitting in working capital.

Payback of twenty-four months: you need twice that.

The difference compounds quickly. A £30M ARR business growing 40% with eighteen-month payback needs roughly £7M in working capital to fund sales and marketing. Same business with nine-month payback needs half. The LTV:CAC ratio might be identical, but growth capacity is completely different.

Blended metrics mask problems

Sales reports blended CAC of £5,000. Inbound pays back in eight months. Outbound takes twenty.

Scaling outbound looks like growth. Drains cash.

Good operators track payback by channel. Shift budget accordingly.

LTV calculations are often fiction

They assume retention holds, expansion continues, gross margins stay constant.

Newer cohorts often perform worse than early adopters. A business calculating LTV at £60,000 based on 95% retention might see 88% in recent cohorts. Real LTV closer to £35,000.

The ratio looks fine until reality arrives.

Pricing structure matters more than CAC reduction

Annual contracts paid upfront versus monthly in arrears: shifts payback by six to twelve months.

Implementation fees that cover onboarding costs bring payback forward.

A pricing change often yields faster results than a CAC optimisation programme.

What to check

Ask your CFO for CAC payback by channel, not blended. Above twelve months in your primary channel? Growth is capital-constrained.

Channels show wildly different payback? You’re probably over-investing in slow-payback sources because they show good LTV:CAC ratios.

Pull retention data by cohort for the last two years. Check whether LTV assumptions still hold. Newer cohorts performing worse? Your LTV calculation is stale.

Test whether pricing structure limits payback. Billing monthly in arrears whilst competitors bill annually upfront? You’re giving away eight to twelve months of payback improvement.

Good operators know payback as precisely as revenue. They track it by channel, test pricing changes, treat it as the binding constraint.

#numbers