Allowable CAC: How to Determine What You Can Afford to Pay for a Patient

Allowable CAC defines the maximum you can afford to spend to acquire a patient while preserving contribution margin, maintaining operational stability, and achieving acceptable payback. It is not simply a marketing benchmark. It is a financial boundary condition tied to the durability of lifetime value, clinical capacity, refund exposure, and working capital strain.

In subscription-based telehealth models, where revenue recognition is staggered, prescription fulfillment drives variable cost, and retention is vulnerable to regulatory or clinical friction, CAC cannot be set aspirationally. It must be calculated from unit economics backward.

This article outlines how to determine allowable CAC using structured financial logic. We will define what it means, walk through the LTV-based CAC calculation, explore contribution-margin sensitivity, assess risk tolerance and payback targets, and establish scaling guardrails to prevent growth from eroding margins.

Key Takeaways

• Allowable CAC is determined by contribution LTV, not revenue.
• Use an LTV-based CAC formula grounded in margin durability.
• Model maximum CAC under margin compression scenarios.
• Set payback ceilings based on liquidity and risk tolerance.
• Install scaling guardrails tied to retention and refunds.

What Allowable CAC Means

Allowable CAC is the maximum acquisition cost you can sustain per new patient while preserving acceptable contribution margin and liquidity.

It is often confused with target CAC or maximum CAC. The distinction matters.

Target CAC is the operational goal your marketing team aims to achieve.

Maximum CAC is the theoretical upper bound at which lifetime contribution equals the acquisition cost.

Allowable CAC sits below that boundary and reflects disciplined capital allocation.

In telehealth, allowable CAC must account for:

• Clinical onboarding costs.
• Provider time and medical review variability.
• Prescription fulfillment and pharmacy coordination.
• Refund and chargeback exposure from delayed delivery or denied prescriptions.
• Retention decay driven by clinical ineligibility or adverse effects.
• Payment processor reserves and subscription churn timing.

Unlike pure ecommerce, telehealth revenue is not immediately liquid profit. A patient may pay for a subscription, but fulfillment delays or medical disqualification can create refunds weeks later. Contribution margin must therefore be calculated on realized revenue, not gross checkout value.

Allowable CAC is therefore anchored to contribution margin over time, not top-line revenue.

A disciplined operator begins with net contribution per patient across the expected lifetime, then applies capital risk constraints. The result is not an optimistic number. It is a survivable number.

LTV-Based Target CAC Formula

The starting point for determining allowable CAC is an LTV-based CAC framework grounded in contribution margin rather than revenue.

The traditional target CAC formula is often expressed as:

Target CAC = LTV × Target LTV: CAC Ratio

However, in telehealth, LTV must be defined precisely:

LTV = (Average Monthly Revenue – Variable Clinical & Fulfillment Costs) × Average Patient Lifetime

This produces contribution-based LTV, not revenue-based LTV.

From here, a disciplined LTV-based CAC approach incorporates capital efficiency targets. For example, if the organization requires a 3:1 contribution LTV to CAC ratio to fund operations and reinvestment, the formula becomes:

Allowable CAC = Contribution LTV ÷ Required LTV: CAC Ratio

Consider a telehealth subscription model:

• Monthly revenue: $150
• Variable medical and fulfillment cost: $60
• Contribution margin per month: $90
• Average retention: 8 months

Contribution LTV = $90 × 8 = $720

If leadership requires a 3:1 LTV: CAC ratio:

Allowable CAC = $720 ÷ 3 = $240

This $240 is not a marketing aspiration. It is the capital ceiling that preserves the margin buffer and reinvestment capacity.

However, this model assumes retention is stable and that refunds, failed prescriptions, and re-engagement costs are already reflected in the margin calculation. In reality, telehealth churn is often front-loaded. Clinical drop-off in months one and two significantly impacts realized LTV.

Therefore, the LTV-based CAC must be stress-tested against cohort-level retention curves rather than blended averages.

If first-month churn increases from 20% to 30%, average lifetime may fall from 8 months to 6.5 months. Contribution LTV drops to $585. At a 3:1 ratio, allowable CAC falls to $195.

A modest retention shift materially alters the maximum CAC.

This is why allowable CAC must be recalculated continuously as retention performance evolves.

Contribution Margin Sensitivity

Telehealth operators often model CAC based on revenue assumptions, while underestimating contribution-margin volatility.

Contribution margin sensitivity stems from several telehealth-specific variables:

1. Provider reimbursement changes.
2. Pharmacy cost fluctuations.
3. Shipping delays and reshipments.
4. Regulatory shifts affecting prescribing eligibility.
5. Refund rates tied to fulfillment failures.
6. Chargeback rates from subscription disputes.

Even a small increase in variable cost compresses contribution LTV and reduces allowable CAC.

Using the earlier example:

Monthly revenue: $150

Initial variable cost: $60

Contribution margin: $90

If pharmacy cost increases by $15 per month:

New contribution margin: $75

Over 8 months:

New LTV = $75 × 8 = $600

At a 3:1 requirement:

Allowable CAC = $600 ÷ 3 = $200

A $15 monthly increase in cost reduces the allowable CAC from $240 to $200. That is a 17% decline in acquisition capacity without any marketing inefficiency.

This sensitivity becomes more pronounced under scaling pressure. As volume increases:

• Clinical review times may expand.
• Customer support burden rises.
• Refund processing accelerates.
• Payment disputes increase.

If operational strain erodes contribution margin, the previously acceptable maximum CAC becomes destructive.

Therefore, allowable CAC must be built on contribution margin net of operational friction, not best-case margin assumptions.

An executive team should model at least three cases:

• Base margin.
• 10% margin compression.
• 20% margin compression.

Allowable CAC should remain viable under moderate stress. If growth requires marketing efficiency that only works under perfect margin conditions, scaling risk is elevated.

Risk Tolerance and Payback Targets

Allowable CAC is not solely a function of LTV. It is also determined by risk tolerance and payback requirements.

Telehealth businesses operate with unique liquidity constraints:

• Revenue is collected upfront but may be refunded weeks later.
• Prescription denial rates create revenue reversals.
• The processor reserves the delay in cash release.
• Advertising platforms require prepayment.
• Clinical payroll is fixed regardless of churn.

This means payback timing matters as much as LTV magnitude.

A business may technically support a high LTV-based CAC, but if payback exceeds six months, cash flow strain can destabilize operations.

Payback period is calculated as:

CAC ÷ Monthly Contribution Margin

Using the earlier example:

Allowable CAC: $240

Monthly contribution: $90

Payback period = $240 ÷ $90 ≈ 2.7 months

If allowable CAC rises to $300:

Payback period = $300 ÷ $90 ≈ 3.3 months

This extension may be acceptable in a well-capitalized environment. However, if refunds or churn push the effective monthly contribution down to $70, payback becomes 4.3 months.

Longer payback increases exposure to:

• Regulatory disruption.
• Platform account volatility.
• Ad channel efficiency swings.
• Competitive CPC inflation.

Risk-adjusted allowable CAC, therefore, incorporates payback ceilings. For example:

• Conservative operators may require sub-3-month payback.
• Moderate risk tolerance may allow 4–5 months.
• Aggressive scaling may stretch beyond 6 months witha sufficient capital buffer.

The correct allowable CAC is the lower of:

1. LTV-based CAC ceiling.
2. Payback-constrained CAC ceiling.

This distinction prevents over-indexing on theoretical lifetime value while ignoring liquidity pressure.

Scaling Guardrails

Scaling acquisition without disciplined guardrails is the most common cause of telehealth margin erosion.

Allowable CAC should not be static. It should be monitored through structured guardrails tied to operational health.

These guardrails include:

1. Cohort-level retention validation.
2. Refund and chargeback thresholds.
3. Clinical capacity utilization.
4. Prescription fulfillment cycle time.
5. Contribution margin stability.
6. Working capital runway.

If any of these deteriorate, the allowable CAC must compress immediately.

For example:

If chargebacks exceed 1.5–2% and begin triggering processor monitoring, acquisition intensity should decline regardless of nominal ROAS performance.

If clinical onboarding delays increase time-to-treatment, first-month churn may rise. That will reduce realized LTV and compress allowable CAC within weeks.

If paid media efficiency improves temporarily due to algorithm shifts, but retention lags for those cohorts, apparent maximum CAC expansion may be illusory.

Scaling guardrails protect against these distortions.

A disciplined organization establishes:

• A base allowable CAC.
• A stress-tested allowable CAC.
• A temporary experimental maximum CAC with predefined review windows.

Marketing should operate within these predefined bands. When CAC exceeds allowable thresholds, spend is reduced automatically, not debated reactively.

This prevents emotional scaling decisions driven by short-term revenue spikes.

Telehealth growth is nonlinear because clinical and regulatory systems do not scale frictionlessly. Guardrails anchor acquisition behavior to economic durability rather than surface-level conversion metrics.

Conclusion

Allowable CAC is not a marketing KPI. It is a financial control mechanism that defines how aggressively a telehealth organization can grow without destabilizing its contribution margin, liquidity, and operational integrity.

Determining allowable CAC requires:

• A contribution-based LTV calculation.
• Margin sensitivity modeling.
• Payback period constraints.
• Risk tolerance alignment.
• Scaling guardrails that trigger discipline automatically.

In telehealth, growth is constrained less by demand and more by operational and regulatory friction. Acquisition economics must reflect that reality.

Actionable Takeaway

Recalculate allowable CAC using contribution-based LTV, not revenue, and enforce a payback ceiling tied to liquidity tolerance. Stress-test margin assumptions under cost compression and rising refund exposure before increasing spend. Install cohort-level retention and chargeback thresholds as automatic scaling guardrails. Growth capital should only be deployed when contribution durability, clinical capacity, and fulfillment stability are confirmed. Treat allowable CAC as a financial boundary condition, not a marketing ambition.

References

1. OpenView Partners. (n.d.). CAC payback basics: What it is, how to calculate it, and why it matters. OpenView Partners. https://openviewpartners.com/blog/cac-payback-basics-what-it-is-how-to-calculate-it-and-why-it-matters/
2. Hayes, A. (n.d.). Contribution margin: Definition, formula, and examples. Investopedia. https://www.investopedia.com/terms/c/contributionmargin.asp