Customer Acquisition Cost (CAC)

What is Customer Acquisition Cost?

Think of Customer Acquisition Cost as the money you need to spend to get a new Customer.

Detailed Explanation

Customer Acquisition Cost (CAC) in SaaS is the total amount of money spent to gain a new customer. This includes expenses for marketing, sales, software, salaries, and more. For example, if you spend $100 on ads and get 10 new customers, your CAC is $10.

How to calculate Customer Acquisition Cost (CAC)-
CAC formula. Source: Geckboard

Why It Matters

For a SaaS CEO or CMO, understanding CAC is crucial. It helps determine the profitability of your business. If the cost of gaining a new customer is higher than the revenue they bring, your business could be losing money. A good CAC means you are investing wisely to get new customers.

Potential Misunderstandings

A common misunderstanding is that a lower CAC is always better. However, a higher CAC can be acceptable if the customer’s Lifetime Value (LTV) is significantly high.

Frequently Asked Questions

  1. What is a good CAC for a SaaS company?
    There’s no one-size-fits-all number as it varies based on the industry, business model, and the product. Generally, your CAC should be less than the lifetime value (LTV) of your customer.
  2. Can a SaaS company reduce its CAC?
    Yes, by optimizing marketing efforts, improving product value, or increasing conversion rates, a SaaS company can potentially reduce its CAC.