How to Calculate Your Customer Acquisition Cost for Your SaaS Business

Over the years, marketers have been able to launch highly-targeted campaigns and track consumers as they transition from initial leads to…

Over the years, marketers have been able to launch highly-targeted campaigns and track consumers as they transition from initial leads to long-term customers. How can you evaluate the success or failure of your sales and marketing campaigns? Are these campaigns worth the money you are putting into them? In this article, we will cover how to measure the Customer Acquisition Cost and why it is important for your SaaS business.

What is the Consumer Acquisition Cost?

Customer Acquisition Cost (CAC) is a marketing metric used to determine the total cost of acquiring a customer in a subscription business. This metric is used most often to media spend, while focusing on the cost for the complete journey from first contact to customer.

How to Measure Your CAC Ratio?

The CAC numerator is expressed as an annualized number as most companies often analyze their company each year. SaaS contracts are typically run on an annual basis. Therefore, the CAC metric will match this time period.

To calculate your CAC ratio, divide the gross margin of the annualized new revenue that your company recorded during a given quarter by the sales and marketing costs:

What the CAC Ratios means to you?

The CAC ratio metric is important to investors and companies. From an investor’s point of view, it helps analyze the scalability of your SaaS business. Investors can determine profitability by comparing how much money can be extracted from customers and the costs of extracting it.

On the other hand, your company’s marketing team is interested in this metric to measure the return on their advertising investments.

The CAC ratio is an important metric for understanding how long it will take you to recover your sales and marketing investments.