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Definition
A payback window is the number of days or months within which a customer's contribution must cover the cost of acquiring that customer. It sets how long the business is willing to wait for the money spent on a new customer to come back.
Payback day = first day when cumulative contribution per customer >= cost to acquire one customerExample with made-up numbers: Cost to acquire one customer is 60. The first order keeps 35 of contribution on day 0. A second order on day 42 keeps 30, so cumulative contribution reaches 65 on day 42. Payback day = 42. With a 30-day window, the same customer counts as not paid back.
How to use it
Measure the window from the first order, and count only the contribution the business keeps, not the revenue. Repeat orders after the window still matter for lifetime value, but they do not count toward the window. Name the window in every report that shows payback, for example 30, 60 or 90 days, so that two reports can be compared.
A short window favours products that people buy again quickly. A long window suits a store where repeat buying is slower. The right window depends on the cash position of the business and on how long repeat orders take. Review it when the product mix, the price or the repeat pattern changes, not only once a year.
