SaaS CAC (Customer Acquisition Cost) Guide: Running a Health Check on Your SaaS Business
“The best advertising is done by satisfied customers.”
We anticipate that you agree with this quote and with the idea that in order to satisfy your customers, you first need to get them through your door. That’s where customer acquisition strategies give you a helping hand.
And when you sum up the results of your CA endeavors and statistics, you discover one of the most vital SaaS metrics – your customer acquisition cost.
In today’s guide, we will tell you CAC definition, show you how to calculate it correctly, prove to you why it’s a must-know metric, and share some actionable ways to reduce your costs of acquiring new paying users.
Let’s get started.
What is CAC in SaaS (and is it equal to CPA)?
SaaS CAC is a metric that stands for customer acquisition cost and shows how many financial resources you invest to acquire a single paying user. You might have encountered another term – CPA (cost per acquisition or action) and may guess they are acronyms used interchangeably or have a similar meaning. In reality, there’s a huge difference.
CPA is a pricing model typical to online advertising that indicates the number of investments you make to generate the desired action – click, form submission, registration, newsletter signup, free trial registration, downloading gated content. Anything from this list or more options depending on what you consider “the desired action”.
As you can see, a visitor may follow your CTA and take a step but he may not reach the bottom of the sales funnel and get stuck in the middle of it. All this logically means that your CPA should always be lower than your CAC.
You may be wondering what’s the average CAC for SaaS companies. The answer is – there’s no perfect answer and consequently no ultimate number you should be striving for. If you charge $39 per customer and your SaaS CAC benchmark is $20, you probably will not be satisfied with that number. But if your monthly subscription is $79, $20 may be a good option.
How to calculate SaaS customer acquisition cost? (formula + example)
Unlike some other SaaS metrics that can be calculated in more than 1 way, the CAC SaaS calculation formula is fixed and won’t make you feel confused. Here’s the formula:
CAC = Total Cost of Sales and Marketing/ # of Customers Acquired in a Given Period
For example, your total spending in the first quarter is equal to $1248 and you acquired 10 paying users. Your SaaS CAC ≈ $125.
Given period? We mean you should figure out how much you invested in your sales & marketing, for example, in the first half of the year and how many customers you acquired in the same period. If your sales cycle usually lasts for more than 6 months, in this case, you’d better broaden the period of calculation to, for example, 8-9 months. And you should calculate your expenses for the same period accordingly.
Sales cycles usually take long when customers are getting ready for long-term business relationships and are going to spend a large amount of money. In the SaaS industry, that’s usually the case for the annual subscription, as for a company, it’s much easier to close monthly than annual plans.
Pro tip 1: Calculate your customer acquisition cost per marketing channel
Some marketing channels require more expenses and bring more customers, others require fewer investments and bring the same number for customers. Separate CAC for each channel will increase the value of this metric and provide more powerful statistics for your future marketing activities.
Pro tip 2: Calculate your CAC SaaS on a regular basis
Customer preferences change, your product features change, your marketing campaigns change. You can’t move forward expecting CAC that was viable a year ago and forget about structural or strategic alterations that have been applied.
What is included in customer acquisition costs?
Is your office space rental included in your CAC? Are your technical team salaries included? Not really. Here’s what should be considered part of your sales and marketing expenses:
You have 5 customers with several monthly subscription plans.
Investments in improving your software, hiring new software engineers or other payments not mentioned above should be excluded from your SaaS CAC, otherwise, you might be scared of the extremely high cost that isn’t even close to reality.
Why measuring CAC is important for your SaaS business growth?
Failing to reach a balance between your SaaS pricing and costs may be one of the reasons for a SaaS startup collapse, alongside the reasons like not satisfying the market needs, lack of cash, wrong or unprofessional team members, and fierce competition. Let’s look at the benefits of calculating your SaaS CAC point by point below.
How to reduce and optimize your SaaS customer acquisition cost?
So what to do?