Why a SaaS business with a healthy LTV/CAC runs out of cash as soon as it grows faster

It is September and the dashboard of a software business with 200 business customers looks better than ever. Monthly recurring revenue stands at €120,000, cancellations stay below 2 percent a month and the ratio between the value of a customer and the cost of winning him is 3.6. The managing director has therefore hired two account managers and increased the advertising budget, aiming for ten new customers a month next year instead of three. His accountant has seen the budget and found nothing odd in it, and in month seven of that plan the bank account is empty.

Seen this way, it is immediately clear where it goes wrong. A business that makes ten of these loans a month instead of three needs money for them that it only sees again two years later. The business model is sound. The price of growth in a subscription model is simply higher than the dashboard shows, because the dashboard does not calculate that price. Work this out in the planning season, the months in which the sales plan and next year's budget are set and the vacancies are posted. If you only see the dip when you are in the middle of it, you have to finance it at the moment the figures look worst, and euro area banks reported in the ECB Bank Lending Survey (July 2026, survey of banks) that they tightened their credit standards for business loans in the second quarter of 2026 and expect further tightening in the third quarter.

How to calculate the payback period of your customer acquisition cost

Four figures from your own accounts are enough for the first calculation. The acquisition cost per new customer, the customer acquisition cost or CAC: all sales and marketing costs in a period, including salaries, advertising, demos and the onboarding hours needed to get the signature, divided by the number of new customers in that period. The gross profit per customer per month: the subscription price minus hosting, support and the other costs that grow with each customer. The monthly cancellation rate, the churn: the number of customers that leave in a month, divided by the number of customers at the start of that month. And the number of new customers a month in the sales plan, because that determines how deep the dip becomes.

In the worked example a customer pays €600 a month excluding VAT. The gross margin is 80 percent, so each customer generates €480 gross profit a month. A new customer costs €9,000 to acquire. Each month 1.5 percent of customers cancel.

The simple payback period is the acquisition cost divided by the monthly gross profit:

9,000 divided by 480 is 18.75 months.

That calculation assumes every customer stays until he has paid back his €9,000. With 1.5 percent cancellations a month, some customers never pay back, and the customers who stay have to make up that loss. The payback period of a cohort of new customers, including cancellations, is calculated with three figures: C is the acquisition cost per customer, B is the gross profit per customer per month, and R is the monthly churn rate written as a number (1.5 percent = 0.015).

In the worked example C is €9,000, B is €480 and R is 0.015.

C × R divided by B: 9,000 × 0.015 divided by 480 = 135 divided by 480 = 0.281

1 minus 0.281 = 0.719

ln(0.719) divided by ln(0.985) = minus 0.330 divided by minus 0.0151 = 21.9, so about 22 months

If you would rather not use a logarithm, put a cohort of a hundred customers in a spreadsheet, deduct 1.5 percent each month, add up the gross profit of the remaining customers per month and divide the total by a hundred. Around month 22 that total per starting customer passes €9,000.

The value of a customer over his whole lifetime, the LTV, is in the simplest model the monthly gross profit divided by the churn: 480 divided by 0.015 is €32,000. Divided by the €9,000 acquisition cost, that gives an LTV/CAC of 3.6. McCarthy, Fader and Hardie (Journal of Marketing, 2017) built a model on these building blocks with which they estimated the value of listed subscription companies from exactly these figures: customer acquisition, cancellations and value per customer. So the LTV/CAC of 3.6 in the example is indeed healthy. That figure just says nothing about how much money you need to get there.

For comparison: KeyBanc Capital Markets and Sapphire Ventures (market report, December 2023, survey of just over a hundred private SaaS companies with median annual revenue of 25.5 million dollars) reported a median acquisition cost payback period of about 23 months for 2022. Those companies are larger than the business in the worked example, and a survey by an investment bank and a venture capital fund mainly reaches companies backed by investors, for whom 23 months is a normal figure. For a Dutch software business that pays for its growth from its own cash, the same 23 months is a financing question of several hundred thousand euros, as the worked example below shows.

Why a healthy LTV/CAC still leaves you with an empty bank account: the monthly worked example

The business from the opening has 200 customers, €120,000 revenue a month and €96,000 gross profit a month. Fixed costs, the development team, management, office and software, are €55,000 a month. Until now three new customers a month have joined, at €27,000 acquisition cost. That produced €14,000 profit a month, €168,000 a year on €1.44 million revenue. Customers pay their monthly invoice by direct debit in the same month, so receivables play no role in this example.

The plan is ten new customers a month. Acquisition costs therefore go from €27,000 to €90,000 a month. In the first month three of the 200 customers leave and ten join, so the business ends the month with 207 customers and €99,360 gross profit. From that come €55,000 fixed costs and €90,000 acquisition: cash flow in the first month is €45,640 negative. Each following month ten customers join and 1.5 percent leave, so gross profit grows a little each month and the shortfall gets a little smaller.

The amounts in the table are rounded to hundreds of euros; the cash column comes from the running monthly calculation, in which customers are not rounded to whole numbers. The low point, the cash trough, is in month 16, when cash is almost €360,000 below the starting level. From month 17 monthly cash flow is positive again. Only in month 34 is the business back to the money it started with, and by then it has 396 customers and €190,000 gross profit a month, almost double today. So the plan is good, and it costs €360,000 that the business does not have: with €250,000 in the bank at the start, cash runs out in month 7.

The profit and loss account for the first year shows the same thing in a different form. Revenue is roughly €1,750,000, gross profit €1,400,000, fixed costs €660,000 and acquisition costs €1,080,000. The result is a loss of €340,000, at a business where every customer is worth more than three and a half times his acquisition cost. The loss is the investment in customers that is booked in the profit and loss account as this year's costs, while the return comes in over the next two years.

Churchill and Mullins (Harvard Business Review, 2001) called the growth rate a company can pay for from its own cash flow the self-financeable growth rate, and showed that you raise that rate by shortening the cash cycle, lowering costs per euro of revenue or raising the price. For a subscription business this translates into one figure: the number of new customers a month you can pay for from the gross profit of existing customers after the fixed costs have been paid.

Self-financeable new customers a month = (gross profit of existing customers minus fixed costs) divided by the acquisition cost per customer.

In the worked example: (96,000 minus 55,000) divided by 9,000 is 4.6 customers a month. At five new customers a month, cash in the running calculation falls at most €6,500 below the starting level, in month 4, and never again after that. At six the dip is €55,000 in month 9. At ten it is €360,000 in month 16. In this example every customer a month above the figure you can pay for yourself costs tens of thousands of euros in cash before he generates anything, and that amount rises the further you are above that figure.

Why you do not see the cash dip in your reporting

The managing director from the opening looks at the same figures every month, and those figures get better every month. Monthly revenue rises from €120,000 to €166,400 in a year. The number of customers grows from 200 to 277. Churn stays at 1.5 percent. LTV/CAC stays at 3.6, because it does not change if you win more customers at the same cost. The sales director hits his target of ten customers a month and the marketer stays within his cost per customer. The customer success manager keeps cancellations at 1.5 percent. At the end of the year the accountant sees a loss of €340,000 that was announced in the budget as an investment in growth. Each of them is right within his own figures, and none of those figures shows in which month cash runs out.

We see at software companies that reporting consists of the figures investors and advisers prescribe: MRR, growth, churn, LTV/CAC. These are figures about the value of the company. The month in which the money runs out is not in them. The profit and loss account books acquisition costs in the same month they are paid and therefore shows the loss, without the month in which the money runs out. The €360,000 dip only appears in a monthly cash forecast, and in our experience that is often missing at a business that has always made a profit. The article on rolling forecasts describes how to set up such a forecast and roll it forward each month, and the article on cash during growth explains why a profitable business gets stuck without one.

The Dutch Tax Administration makes the dip in the worked example slightly deeper still. On last year's profit of €168,000 the business pays 19 percent corporate income tax (vennootschapsbelasting), the rate that according to the Belastingdienst (2026 rates) applies up to €200,000 profit: €31,920. According to the same Belastingdienst, most companies receive a provisional assessment (voorlopige aanslag) at the start of the year, calculated on the figures of previous years, and if you expect a different profit you have to report a change yourself. If the business does not, it pays €31,920 tax in the growth year on a profit that will not materialise, and the dip in the running calculation deepens to just over €391,000 in month 16. That money comes back, but only after the return for the loss year.

Calculate per segment and per channel, because the average hides the customers who never pay back

The 1.5 percent churn and the €9,000 acquisition cost in the worked example are averages, and the money is made or lost in the parts that make up that average.

Fader and Hardie (Marketing Science, 2010) showed what goes wrong if you calculate with a single average churn rate. Customers differ in their tendency to cancel, and the customers with the highest tendency leave first. A cohort's churn rate therefore falls by itself over time, even if nothing about the service changes. If you calculate LTV with the churn rate of the first months, by their calculation you underestimate the value of the customer base by 25 to 50 percent. For cash this works both ways. In the worked example the cohort consists of two groups of fifty: small customers who cancel at 2.5 percent a month and larger customers who cancel at 0.5 percent a month. The average in the first month is 1.5 percent, and after two years the measured churn rate has fallen to 1.3 percent, only because the first group has thinned out. The LTV of a customer from the first group is 480 divided by 0.025, so €19,200, and the payback period of that part of the cohort is 25 months at an LTV/CAC of 2.1. The second group is worth €96,000 per customer and earns back its acquisition in 20 months. The 3.6 on the dashboard is calculated with the average churn and hides a group that barely earns back its acquisition next to a group that returns ten times its acquisition. If you calculate per group and then average, you get 6.4 instead of 3.6, and that difference is the underestimate Fader and Hardie describe. The sales plan wins both groups at the same €9,000.

The channel does the same. If half of new customers come in through the website at €5,000 and the other half through outbound sales at €13,000, the average is €9,000 and the average payback period almost 19 months. The first group pays back in just over 10 months, the second in 27. A growth plan that gets the extra customers mainly from the second channel has a deeper dip than the table above shows, and a plan that builds out the first channel a shallower one.

Gupta, Lehmann and Stuart (Journal of Marketing Research, 2004) calculated for five listed companies that a 1 percent improvement in customer retention increases the value of the company by about 5 percent, while 1 percent lower acquisition cost increases that value by about 0.1 percent. Retention is therefore the lever for the value of the company. For cash over the next two years it works differently. A customer who stays generates an extra €480 every month, so lower churn fills cash slowly. A euro less in acquisition cost stays in cash in the same month. In the worked example, 1.0 percent churn instead of 1.5 percent reduces the dip from €360,000 to €301,000; €7,000 acquisition cost instead of €9,000 reduces it to €116,000.

Which payback period and which cash dip are acceptable for a SaaS business?

A benchmark norm helps little here, because the median of 23 months from the KeyBanc and Sapphire report (2023) was measured at companies with median revenue of 25.5 million dollars, for whom the dip is a different question than for a business with €1.44 million revenue. What is acceptable follows from two comparisons you make yourself.

The first is the dip against the money you have. Add up the negative monthly cash flows of your plan until the month in which cash flow turns; that is the dip. Our rule is that the dip plus a buffer of a quarter must fit within your cash plus the credit the bank has committed in writing. In the worked example that is €360,000 plus €90,000, so €450,000, against €250,000 cash and no credit line. The plan therefore does not fit within the cash, and with this calculation that is known in September instead of in month 7.

The payback period against your form of financing is the second comparison. If you pay for growth from your own cash, we see at Dutch software companies that a payback period of up to about 12 months is the limit within which a growth plan of more than a few customers a month can still be carried by current gross profit; above that, every extra customer a month is a financing question. If you have an investor or a growth loan, the question is how many months that party is willing to bridge, and whether the month in which cash flow turns, month 17 in the example, falls within that agreement.

Make this table for your own business before the vacancies go out, because acquisition costs start on the new account manager's first working day and the first customers only sign months later. After that it should come back every quarter, per cohort of new customers: how many of the customers signed in January are still there, and how much of their €9,000 have they paid back so far. If you find that too much work, start with a spreadsheet with four rows and 36 columns: the number of customers, gross profit, fixed costs and acquisition costs per month, with cash as a running total underneath. If you do not know churn per segment, use the average of the last twelve months and add a variant with half a percentage point more.

Which software companies this does not apply to

The worked example is built on monthly payment, on acquisition costs of almost nineteen months of gross profit and on a business that pays for its own growth. Each of those assumptions determines how deep the dip becomes, and at some companies there is no dip.

A software business that has all new customers pay a year in advance, even with a 10 percent discount, already has a €13,200 surplus in month 1 in the running calculation and over the whole plan falls at most €5,400 below the starting level, in month 12, when the first annual contracts have not yet been renewed and the next batch has already been paid. For that business growth finances itself, and the question shifts to what happens if renewals disappoint. A business with a product that customers sign up for online themselves, at €2,000 acquisition cost, earns that back in just over four months and can pay for ten new customers a month from current gross profit. A business that deliberately has an investor pay for the dip is limited by the agreement with that investor on how many months he will bridge; for that business the table above is the basis for the round it is asking for.

The dip can also turn out deeper than in the table. A business serving larger customers, with €3,000 a month per customer and €40,000 acquisition cost, has a simple payback period of almost 17 months at an 80 percent gross margin, so virtually the same as in the example, with a dip that is more than four times as large per extra customer a month. And a business that has its customers pay on invoice with thirty-day terms, instead of by direct debit, moves every payment a month later and starts the dip a month's revenue deeper.

What can a SaaS business do when growth drains its cash?

The measures below come from the scenarios in the table. We sell the first one ourselves, because setting up management information is our work; take that into account as you read.

1. Put the monthly cash forecast next to the sales plan, before the plan is approved. In the worked example the picture changes from "LTV/CAC 3.6 and almost 40 percent growth" to "€360,000 shortfall in month 16, cash gone in month 7". Four rows in a spreadsheet are enough to start, and after that the forecast should roll forward a month every month. Include the provisional assessment and have it adjusted as soon as the loss year starts; in the example that saves €31,920 in the year in which money is tightest.
2. Have some of your new customers pay a year in advance, and give a discount for it. If half of the new customers in the worked example pay an annual invoice of €6,480, 12 times €600 with a 10 percent discount, the dip falls from €360,000 to €173,000 and cash flow is positive from month 13 instead of month 17. The discount costs €720 per customer per year, and that is the price of money you would otherwise have had to get from a bank or investor. Watch the VAT: the €6,480 annual invoice carries €1,360.80 VAT, which you pay in the next return, so calculate with the net amount. Ask your adviser how revenue received in advance is treated in the annual accounts and the tax return.
3. Measure acquisition costs per channel and shift budget to the channel with the shortest payback period. In the worked example a customer via the website pays back in just over 10 months and a customer via outbound sales in 27 months. Every €1,000 less in average CAC reduces the dip in the running calculation by more than €120,000: at €7,000 instead of €9,000 it goes from €360,000 to €116,000. The sales director who is judged on numbers does not see this difference; give him the payback period per channel as a second target alongside the number.
4. Work on retention in the first ninety days, and measure which customers you keep as a result. Gupta and colleagues (2004) show that retention is the biggest lever for the value of the company. Ascarza and colleagues (Customer Needs and Solutions, 2018) add in their review of research on customer retention that the customers most at risk of cancelling are not the same as the customers for whom a retention action achieves the most. A retention action should therefore start with the second group. In the worked example, 1.0 percent churn instead of 1.5 percent lifts the LTV from €32,000 to €48,000 and the LTV/CAC from 3.6 to 5.3; it works more slowly on the dip, from €360,000 to €301,000. We see at software companies that most cancellations fall in the first three months after the start, among customers who never properly started using the product; onboarding is therefore the place to begin.
5. Choose the growth rate that fits your cash, or arrange financing before the vacancies go out. In the worked example the business can pay for 4.6 new customers a month from its own gross profit. At six a month the dip is €55,000, and that fits within €250,000 of cash. At ten it is €360,000, and then you choose from the scenarios in the table: prepayment, a lower CAC, financing in advance, or a combination. If you choose financing in advance, do it in the months when last year's profit is still in the annual accounts and the loss is not yet, because the ECB survey of July 2026 shows that banks are tightening their standards, and an application with a cash forecast that shows the dip and the turn in month 17 is assessed differently from an application made from an overdrawn account. Churchill and Mullins (2001) already wrote it: the manager of a growing company must find the balance between consuming cash and generating cash, and you choose that balance in advance.

Frequently asked questions about customer acquisition cost payback and cash during growth in a SaaS business

Why do I have a cash shortfall while my MRR is growing?

Because the acquisition cost of a new customer is paid in one go and that customer's revenue comes in as monthly instalments. In the worked example in this article a customer costs €9,000 and generates €480 gross profit a month; with ten new customers a month, €90,000 a month goes out, while gross profit rises by €3,360 in the first month. MRR grows while cash falls, and monthly cash flow only turns once enough new customers have built up, in the example in month 17.

How do I calculate the payback period of my customer acquisition cost?

Divide the acquisition cost per new customer by the gross profit the customer generates each month. In the worked example: 9,000 divided by 480 is 18.75 months. If you want to include cancellations, put a cohort of a hundred new customers in a spreadsheet, deduct the churn rate each month and add up the gross profit until you reach the acquisition cost per customer; with 1.5 percent churn a month, in the example it becomes about 22 months. Include all sales and marketing costs in the acquisition cost, including salaries and the onboarding hours up to the signature.

What is a good CAC payback for a SaaS business?

That depends on who pays for the months in between. KeyBanc Capital Markets and Sapphire Ventures (market report, December 2023) reported a median of about 23 months for 2022 among private SaaS companies, in a survey that mainly reaches companies backed by investors. If you pay for growth from your own cash, we see at Dutch software companies that a payback period of up to about 12 months still allows a growth plan of more than a few customers a month; above that, every extra customer a month becomes a financing question. So first calculate the dip that goes with your payback period and your growth rate, and compare it with your cash and your committed credit.

Is an LTV/CAC of 3 good enough?

An LTV/CAC of 3 or higher says that a customer generates more over his lifetime than he costs, and McCarthy, Fader and Hardie (Journal of Marketing, 2017) show that you can estimate the value of a subscription business from such figures. When that money comes in, you read from the payback period and the cash forecast; the table of scenarios shows how far cash falls in the example at an LTV/CAC of 3.6. So look at the payback period and the monthly cash forecast alongside the LTV/CAC, and calculate the LTV/CAC per segment: in the example it is 2.1 for the small customers and 10.7 for the large ones, and the 3.6 that follows from the average churn underestimates the average of those two groups, which is 6.4.

How much cash do I need to grow my software business?

Put the growth plan in a monthly cash forecast with four lines: customers, gross profit, fixed costs and acquisition costs. Add up the negative monthly cash flows until the month in which cash flow turns; that is the dip. Our rule is that the dip plus a buffer of a quarter must fit within your cash plus the credit committed in writing. In the worked example that is €360,000 plus €90,000 at ten new customers a month, and €55,000 plus €14,000 at six.

What does annual prepayment of a subscription do to my cash flow?

It brings twelve months of revenue forward to the month in which the customer signs, at the price of the discount. In the worked example half of the new customers pay €6,480 in advance, 12 times €600 with a 10 percent discount; the dip falls from €360,000 to €173,000 and monthly cash flow is positive from month 13 instead of month 17. If all new customers pay in advance, growth in the example finances itself. Calculate with the amount excluding VAT, because you pay the VAT on the annual invoice in the next return.

How many new customers a month can I afford without an investor?

Divide the gross profit of your existing customers minus your fixed costs by the acquisition cost per customer. In the worked example: 96,000 minus 55,000, divided by 9,000, is 4.6 customers a month. That is the translation of the self-financeable growth rate of Churchill and Mullins (Harvard Business Review, 2001) to a subscription business. Every customer a month above that requires cash, and how much you read from the monthly cash forecast.

Further reading: Cash flow as a brake on growth: why SMEs get stuck and how to break through and Rolling forecasts: steering in uncertain times.

← Back to knowledge base