The average SaaS company spends 92% of its first year revenue on customer acquisition. In other words, it takes 11 months to pay off their customer acquisition cost. CAC is crucial for every business, but its analysis is even more vital for SaaS companies as the industry Image Manipulation depends on customer lifetime value. As a SaaS business owner, you wouldn't want to acquire a customer that is likely to have high lifetime value but is just as expensive to sell. CAC (customer acquisition costs) refers to the total amount you Image Manipulation spend to acquire a new customer, including all the sales and marketing expenses you pay to get those customers. In this article, I'll explain why CAC is important, the CAC benchmark for SaaS, and how to calculate your CAC.
I'll also tell you what SaaS metrics to track and how to lower your customer acquisition cost. Let's start! Book my free SaaS marketing consultation Why is the CAC important? The Image Manipulation customer acquisition cost indicates how long it will take to generate profit from each customer. CAC also allows you to measure the effectiveness of your marketing strategies. Here are some of the main reasons Image Manipulation why CAC is important for SaaS companies: It helps you find the best customer acquisition channels and tactics. It allows you to manage your income and expenses more efficiently. If you track CAC consistently, you can gain tremendous insights into several factors of your business model, such as pricing efficiency, churn rate, and customer success. When you Image Manipulationknow the cost of customer acquisition and how it relates to subscription value, you can scale your SaaS business more effectively. This makes it easier for you to improve your business model Image Manipulation and the value of your business. What is a good CAC ratio for SaaS? A good CAC ratio for your business depends on the customer lifetime value of your business.
CAC and LTV (Customer Lifetime Value) go hand in hand: CAC indicates the cost of acquiring a customer LTV predicts a customer's value to your business over time You Image Manipulation should aim for a ratio of 3:1 or higher to stay profitable. However, if the ratio is too high (5:1 or more), chances are you are underspending in the acquisition process and stunting growth: Therefore, if you spend $5,000 to acquire a customer, you Image Manipulation should aim to earn at least $15,000 from each one. How do you calculate your CAC? To calculate your CAC, divide the total sales and marketing spend by the total number of customers acquired in Image Manipulation a given time period. Your sales and marketing expenses should include everything related to it, such as: Monthly Paid Advertising Spend Content Marketing Fees SEO and marketing tools (if applicable) Sales and Image Manipulation Marketing Team Member Salaries For example, if your sales and marketing expenses for this month are $5,000 and you have acquired 25 new customers, your CAC will be:
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