Model your paid media performance across channels. Calculate per-channel CAC, blended ROAS, LTV/CAC ratio, and payback period — then see which channels are profitable and which are destroying margin.
| Channel | Spend | Conv. | CAC | Revenue | ROAS | Gross Profit |
|---|---|---|---|---|---|---|
| Run model to view channel breakdown | ||||||
Paid acquisition ROI is not about the dashboard number your ad platform reports. It is about whether the margin generated from acquired customers exceeds the fully loaded cost of acquiring them — across all channels, over a defensible time horizon. Most companies optimize for ROAS while ignoring CAC, payback period, and LTV. That produces channels that look efficient and businesses that are structurally unprofitable.
The four metrics that actually determine whether paid acquisition is working are: CAC (what you paid to get them), ROAS (revenue return on spend), LTV/CAC ratio (the long-run value multiple), and payback period (how long until you've recovered your acquisition cost from gross profit). This model calculates all four per channel and blended — giving you an honest picture of where to scale and where to cut.
A 4× ROAS sounds strong. But at a 20% gross margin, that 4× ROAS barely breaks even: you earned $4 for every $1 spent, but $3.20 of that went to COGS. Net gross profit contribution from that $1 of spend: $0.80. Minus the $1 you spent: you lost $0.20. Break-even ROAS = 1 ÷ Gross Margin. At 20% margin the break-even is 5×; at 50% margin it is 2×. Target ROAS benchmarks mean nothing without gross margin as context.
This model calculates gross profit per channel — not just revenue — so you can see which channels are actually contributing margin to the business, not just revenue to the income statement.
Payback period tells you how long the business must carry the acquisition cost before it has been recovered from gross profit. A 24-month payback on a $500 CAC means you need $500 in working capital per customer tied up for two years. At 1,000 new customers per month, that is $500,000 in capital tied up in acquisition costs at any given time. Companies that scale aggressively without tracking payback period frequently run out of cash while growing — the paradox of unprofitable growth.
CAC is the total cost to acquire one new customer from a specific channel. Per-channel CAC = Spend ÷ New Customers from that channel. Blended CAC = Total Marketing Spend ÷ Total New Customers across all channels. CAC should include only costs that are truly variable with acquisition: ad spend, agency fees, and directly attributable sales costs. Overhead and fixed costs are typically excluded from CAC and instead assessed separately in unit economics analysis. Always compare CAC against LTV — CAC in isolation tells you nothing about profitability.
ROAS (Return on Ad Spend) = Revenue ÷ Ad Spend. A 4× ROAS means $4 in revenue per $1 spent. ROI = (Revenue − Total Cost) ÷ Total Cost, and accounts for COGS, overhead, and all costs. ROAS is a revenue metric; ROI and gross profit contribution are profitability metrics. ROAS is useful for optimizing channel efficiency and media buying decisions. Gross profit and LTV/CAC are the correct metrics for evaluating whether paid acquisition is a sound business investment.
The canonical benchmark is 3:1 — $3 of lifetime value for every $1 of acquisition cost. Below 1:1, you're destroying value on every customer. Between 1:1 and 3:1 you're covering cost but not generating the surplus that funds growth. Above 3:1 is generally healthy. Above 5:1 often suggests you're leaving acquisition capacity on the table — CAC is low enough that you should be spending more aggressively. The ratio must be evaluated alongside payback period: a 5:1 LTV/CAC ratio over 5 years is a very different business from a 5:1 ratio over 8 months.
Use gross margin (revenue minus COGS). Do not use net margin, which includes fixed overhead — those costs exist regardless of your acquisition activity and should not be attributed to individual customer unit economics. Do not use contribution margin unless you have a specific reason to. Gross margin is the correct input for payback period calculation, break-even ROAS, and LTV modeling. For e-commerce, include shipping and fulfillment costs in COGS since they are variable with each order. For SaaS, gross margin is typically 70–85% and excludes customer success and support costs (which are sometimes included in a more conservative "contribution margin after success" calculation).
For new businesses, LTV must be estimated from comparable benchmarks and product assumptions. Use: LTV = AOV × Expected Repeat Purchase Count × Gross Margin. For subscription: LTV = ARPU × (1 ÷ Monthly Churn Rate) × Gross Margin. Start conservative — assume lower retention than you hope for and model sensitivity. Even rough LTV estimates are useful as long as you're consistent in methodology. The bigger risk is using AOV as a proxy for LTV, which dramatically understates the value of retained customers and leads to under-investment in acquisition.
Break-even ROAS = 1 ÷ Gross Margin. At 25% gross margin: break-even ROAS = 4×. At 40% gross margin: 2.5×. At 60% gross margin: 1.67×. At 80% gross margin: 1.25×. Any ROAS above this level generates positive gross profit contribution from the channel. Any ROAS below this level burns cash. The formula assumes the revenue figure being used excludes COGS — if you're using net revenue or applying the formula to blended revenue inclusive of returns and refunds, adjust accordingly.
Both. Blended CAC gives you the overall health of the acquisition program and is the correct denominator for LTV/CAC modeling. Channel-level CAC reveals where efficiency is being created or destroyed. Common pattern: search campaigns have low CAC but limited volume; awareness campaigns (display, social prospecting) have high CAC but drive demand that converts in search. Optimizing each channel in isolation leads to cutting awareness spend, which then tanks search performance 6–12 weeks later. Model channel-level CAC, but evaluate budget decisions in the context of full-funnel attribution.
For subscription businesses: Payback = CAC ÷ (MRR × Gross Margin). A $600 CAC at $60 MRR and 80% margin = 600 ÷ (60 × 0.80) = 12.5 months. For transactional/e-commerce businesses: Payback = CAC ÷ (AOV × Purchase Frequency per Month × Gross Margin). If customers buy once every 3 months at $100 AOV, monthly gross profit = $100 ÷ 3 × 40% = $13.33/month. At a $60 CAC: payback = 4.5 months. For single-purchase businesses with no repeat buying, payback period is meaningless — the entire LTV is the first transaction, and acquisition can only be profitable if AOV × Margin exceeds CAC on the first purchase.
White Oak Intelligence builds paid acquisition dashboards and attribution models that connect ad spend to closed revenue — not just tracked conversions. We integrate your ad platforms, CRM, and revenue data into a single attribution layer that tells you exactly which channels and campaigns are generating profitable growth.
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