How it's calculated
- First-order loss = cost to acquire a subscriber − first-order margin
- If every subscriber renewed: renewals to break even = first-order loss ÷ renewal margin, rounded up
- Subscribers still active after renewal k = first renewal rate × the rate of each renewal after it, moving from the first rate to the settled rate by half the gap each renewal
- With churn: the first renewal k where renewal margin × (active after renewal 1 + … + active after renewal k) reaches the first-order loss
- Lifetime ceiling = renewal margin × the expected renewals per subscriber if you followed them forever; below the loss, CAC is never paid back
Every figure on this page comes from Offer Suite's own margin engine, the same code the product uses to forecast each offer's and option's profit and to compute realized margin on orders. Money is computed in whole cents.
Worked example
A $40.00 bag of coffee on subscription: 20% off the first order with a mug in the box, then 10% off a renewal every 30 days. The first order keeps $3.79 and each renewal $11.68. Acquiring the subscriber cost $45.00, so the first order leaves $41.21 to earn back.
The spreadsheet answer divides that by a renewal's margin: 4 renewals, paid back in month 4. But only 70% of subscribers take the first renewal, and the rest settle at 88% a renewal after that. Following the ones who stay, a subscriber is expected to take 4.95 renewals in a lifetime, and CAC is paid back in month 10, at renewal 10. Over 24 months a subscriber earns $14.03 after CAC.
Assumptions
- Each renewal ships the products that recur at the renewal discount. The welcome gift ships on the first order only.
- Renewal rates follow a smooth curve from the first renewal's rate to the settled rate. Your subscription app's cohort report gives your real curve; use its first and later rates.
- Profit is counted in the month each order ships, with no discounting for time, and CAC is paid in month 0.
- The defaults are an illustrative coffee subscription, not a benchmark: use your own CAC and retention.
- Pick and pack $1.18 per order and $0.20 for each extra item are the defaults of the engine's DTC-US profile, a typical third-party warehouse contract. Use your own contract.
- The shipping label ($7.50) is an assumption for a domestic ground parcel of about a pound. Your carrier account or shipping app has your rate.
- Card processing of 2.9% + $0.30 is Shopify Payments' online rate for a standard card on the Basic plan in the United States. The Shopify Payments fees pages list every plan and country; enter yours.
- The refund reserve (5%) is a share of revenue set aside for refunds. Cost is not reduced by a refund, because the goods were already picked and shipped.
Questions
How do I calculate subscription payback?
Take what you paid to acquire the subscriber, subtract what the first order kept, and earn the rest back from renewals. Each renewal's margin counts only for the share of subscribers still active when it ships, so add renewal margin times that share, renewal by renewal, until the total covers the loss.
Why is (CAC − first-order margin) ÷ renewal margin wrong?
It counts every renewal as if every subscriber took it. If 30% leave after the first box, the second renewal earns for 70% of them at best. With the defaults on this page, the simple sum says 4 renewals; following the subscribers who actually stay takes 10.
What does it mean when CAC is never paid back?
Churn is fast enough that even following subscribers forever, the expected renewals cannot earn back the first order's loss. Lower CAC, earn more on the first order, or keep subscribers longer; a longer horizon will not help.
Should I use a cohort curve or one retention rate?
A curve. Most subscriptions lose the most subscribers at the first and second renewal and then settle. One rate across every renewal overstates the early renewals or understates the later ones, and payback depends on the early ones.