Ryan Shank of PhoneWagon argues payback period is the most reliable metric for SaaS growth decisions. He walks through an example where outbound sales generate $750 MRR at a $5,500 acquisition cost, yielding a roughly 10-month payback. He explains why this channel-specific metric beats the often-misused LTV/CAC ratio, which relies on uncertain retention assumptions.
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What up guys, it's Ryan from PhoneWagon back in the chair. We haven't done a video like this in a really long time. I'm glad we're throwing it back. If you guys want to scroll down, I'm not even gonna edit this video by the way, uh, and I just wanted to update everyone on some things we got going on. So if you want to scroll down, we used to do videos like this every single day, unedited, just me talking and giving you guys like an update on what we have going on. The one thing I do want to talk about today is payback period. So, uh, what I've been doing recently is looking at all of our metrics and and the sales that are coming from different channels. And you know, for instance, with outbound sales, just to give you guys an overview of, for instance, like what happened last month. So just outbound sales from last month brought in about $750 in MRR. And you know, just through cost to acquire that, salesperson's expenses, it was like, you know, call it $5,500, right? And so on a gross margin basis, you basically would take 85% of the $5,500 in cost, I'm sorry, 85% of the $700 in MRR, and so let's say 7 times 8, you know, let's say it's like $560, and it costs us, call it $5,500 to acquire that, and then you just divide the two, and that's the payback period. So it's about a 10-month payback period for outbound sales, with, by the way, you know, a ramping sales rep and limited training and stuff like that. Like, you'll do that all day. I was actually reading an article from Tom Tongs today from Redpoint Ventures. He's like the godfather of SaaS and he has all this data and everything. Two things, he was just saying that, you know, lifetime value is like a difficult metric to actually use. A lot of people want to use like CAC to LTV ratios, but it's just difficult to use LTV because like you're guessing your retention curve, right? You're looking at maybe like, you know, first few months, but you don't know the actual retention curve. Or if you just, you know, do 1 divided by monthly churn and say, hey, it's going to last. You know, if it's like 3%, 1 divided by 3%, 33 months times, you know, let's say average gross margin of like $60, you know, 60 times 33, you say like, alright, you know, our LTV is like $1,900. It's just not really accurate, right? Because you're kind of like punting and you're thinking about that. But if you do it more on like payback period and you just kind of use a payback period months as like a gut check, like, hey, you know, if I can acquire a customer for this amount of money and get it paid back within, call it, 6 months, it's like you'll do that all day. Scale that, scale that, scale that. So, you know, that's one thing that we're going to actually do right now is we're actually going to start scaling, you know, the outbound stuff. Because before I was like, you know, let's, let's hold off on it, you know, let's wait till we get some more product stuff. But it's like, you know, that payback period, 10 months, um, for like one rep who's like, you know, ramping and, you know, uh, and, you know, sales cycles are actually longer than I originally anticipated. So we're gonna scale it up in addition to, you know, driving more like inbound leads and doing this whole like inbound thing. But just the point of, you know, focusing on payback period, I think is like a really good gut check metrics to do. It's like, and again, you want to isolate your, you know, your sales. Like, you don't want to do blended, right? Because you don't want to say like, oh, we had, you know, 50 sales last month. But if a lot of those, you know, some of those are coming from, you know, referrals, and some of them are coming from, you know, just organic search, it's like, that's not stuff that you can just like throw gas on the fire. That's not really repeatable necessarily. Like, you can do things to try to increase that, but it's not something that is like a process that, you know, predictably you can repeat. So payback period, but, but isolate the actual sales that are coming from that particular payback period. Like, we look at payback period of different, you know, channels, right? So for instance, our outbound channel, our inbound channel from like, for instance, AdWords or Facebook. But you only want to look at the leads and the actual customers that are coming directly from them. And I'm not talking view-throughs, I'm not talking, you know, someone that originally came and then they referred someone, so then the referral is getting attributed to that. I'm talking about like direct sales from that spend. Look at the payback period of that, look at the cost of that, and just make sure make sure— well, I guess you have to look at cost to get into the payback period. So anyway, uh, so that's what you're gonna do. But, uh, so payback period is huge metric to look at. Um, if it's looking good, boom, see how it— boom, try to scale it. But the thing is, you don't want to just like, you know, throw— for instance, like with Ab Mount, throw like 20 reps on it, because then it's like, if it doesn't scale, you want to like test the elasticity of that as it starts to grow. Like as you add 2, 3, 4 reps, like boom, are they— are they going? If they are Whoop, add another 2. Whoop, add another 2. And by the way, to get 2, especially to ramp and stuff, probably gonna have to hire 3, 4, probably not gonna work out, things like that. Plus, by the way, what I'm starting to learn is that people sometimes will either do bad interviews that are actually good, or they'll crush the interviews and maybe they're not so good, or maybe just not a good fit. So you really have to work with someone, or you really have to get recommendations from previous jobs and things like that. One thing that I'm really starting to look at, And this video's just going off on a tangent, so hope it's Friday, I mean, come on. And I'm just gonna upload right away, so it's not like this was recorded yesterday, spliced up, this is just rawness. Already a 5-minute video, we gotta wrap it up. Anyway, what I was saying is, what I start to really look at is if you've been somewhere for like a certain period, like a certain length of time, like at least year, year and a half, 'cause then you know that it's like they've gone through, you know, they've gotten past that honeymoon phase where it's like all good and everything's great, you know, and you've gone through the like, shitty, you know, especially with sales, like the shitty downs and the ups, and you just boom, uh, proven consistency and stuff. So anyway, wrapping it up, payback period, super important. No edits on this video, super raw. Hope you guys made it to the end. If you made it to the end, smash the subscribe button, share the video, like the video, do it, do it, do it. We're not editing this out, I don't know what to do. Uh, throw a comment in there, and, uh, we'll see you guys tomorrow. I'm gonna do a new video. We're slicing it up. We got the vlog coming back next week. Sorry we had to take a little week off, you know, we, uh, just doing things anyway. Bye. Now, like, we would normally cut this. I'm just like, I'm just have to press the button to like end it, and then I have to upload. It's awkward. Hope no one stayed to the very end. If you did, just make fun of me in the comments.
