The Payback Period is the time it takes for a business to recover its Customer Acquisition Cost (CAC) through the revenue generated by a customer. It helps businesses understand how long it takes for a new customer to become profitable. A shorter payback period indicates a more efficient return on investment in customer acquisition.

The Payback Period is calculated by dividing the Customer Acquisition Cost (CAC) by the average monthly revenue per user (ARPU) or by calculating the cumulative revenue generated by a customer until it equals the CAC.

1. Basic Example: A company has a CAC of $500 and an ARPU of $50 per month. The payback period is:

\begin{align}\text{Payback Period} &= \frac{500}{50} \cr&= 10 \text{ months}\end{align}

2. Advanced Example: A company spends $600 on acquiring a customer who generates $30 per month. The payback period is:

\begin{align}\text{Payback Period} &= \frac{600}{30}\cr&= 20 \text{ months}\end{align}