How to Calculate CAC for Your SaaS Business[+5 Improvement Steps]

Learn how to calculate the Customer Acquisition Cost(CAC) for your SaaS business and how to optimize it with five actionable improvement steps.

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Starting a successful SaaS business is exciting and challenging at the same time. 

However, you need good planning, creative marketing, and great selling skills to attract new customers and keep them happy.

But how can you tell if your marketing and sales are working? 

And if they're making you money? 

That's where customer acquisition cost (CAC) comes in.

Whether you're just starting out or have been around a while, watching your CAC helps you make smart decisions about where to put your money and how to grow.

In this article, we'll help you figure out your CAC well, why it's so important, and how to make it better for the future.

What Is Customer Acquisition Cost?

Customer Acquisition Cost(CAC) is a metric that shows how much it costs to get a new customer, including everything like ads, salaries, and other costs for getting new SaaS customers.

For SaaS business owners, knowing your customer acquisition cost is really important. 

Why Is CAC Important for SaaS Businesses?

CAC is super important for SaaS startups and companies as it shows how much you can spend on getting new customers while still making money.

If your CAC is high, it means you're spending more on getting customers than they're worth. 

If it's low, each customer brings in enough money to cover the cost of getting them.

Also, CAC helps find the break-even point. 

That's when the money you make covers all your costs(fixed costs and variable expenses).

Knowing your CAC helps SaaS companies figure out how many customers they need to make a profit.

How to Calculate CAC?

To calculate CAC, you need to add up all your sales and marketing costs for a certain period, like a month or a quarter. 

This includes things like ads, salaries, and sales commissions.

Then, count the number of new customers you gained during that time. 

You can do this by keeping track of the number of people who signed up for your service or product.

Lastly, just divide all your sales and marketing expenses by the number of new customers you have. 

That gives you your CAC.

Here’s the customer acquisition formula:

CAC = (Total Marketing and Sales Expenses) / (Number of New Customers)

Customer Acquisition Cost Example

For instance:

Total sales and marketing costs: $10,000
New customers: 100
CAC: $10,000 / 100 customers = $100

What Should Be Included in Customer Acquisition Cost?

When calculating CAC, be sure to count all the costs related to getting new customers. This includes things like:

  • Ads, 
  • Events, 
  • Mailings, 
  • Tools, 
  • Social media, 
  • Making content, and 
  • Paying your sales team.

Note: Remember that it takes time and effort to turn leads into paying customers. So, include that time in your calculations.

What Is a Good CAC For SaaS Businesses?

In the SaaS industry, the best CAC depends on things like who you're aiming at, how complex your product is, and how much money you want to make. 

But usually, your CAC should be lower than your LTV.

This means you're making more money from a customer than it costs to get them. 

Usually, if your CAC is less than 25% of your LTV (a ratio of 3:1), it's good for SaaS businesses.

In simple terms, a customer should be worth about three times more than what you spend to get them. 

For example, if you spend $50 to acquire a new customer and one customer spends $150 with you, that's great.

How to Improve CAC for Your SaaS Business in Easy Steps

To make your CAC better, it's super important to work on improving your marketing and sales strategies. 

Here are some tips to help you lower your CAC:

1. Target the Right People 

When calculating your customer acquisition cost (CAC) for your SaaS business, one fundamental step is to ensure that you're targeting the right audience. 

Aim your marketing efforts at individuals or businesses who are most likely to benefit from and utilize your SaaS platform. 

By understanding your target audience's demographics, behaviors, and pain points, you can tailor your messaging and strategy to engage and attract potential customers effectively.

Suppose you run a project management SaaS platform tailored for small businesses and nonprofit organizations. 

Instead of casting a wide net with your marketing efforts, you should focus on targeting small business owners or managers who struggle with managing multiple projects simultaneously.

Here’s an example of what personalization by Monday.com does for non-profit organizations:

By identifying this specific audience, you can tailor your messaging to highlight how your platform addresses their pain points, such as streamlining task management and improving team collaboration. 

This targeted approach increases the likelihood of attracting qualified leads who are more likely to convert into paying customers, thereby reducing your overall customer acquisition costs.

2. Improve and Optimize Your Website 

Your website serves as a crucial touchpoint for potential customers to learn about your SaaS business. 

To calculate CAC effectively, it's essential to have a website that not only showcases the features and benefits of your platform but also convinces visitors to sign up.

By improving your website's conversion rate, you can attract more qualified leads and ultimately reduce your customer acquisition costs.

Discover how we helped AuthoredUp increase conversions by 64% by creating a new website.

Let's say your SaaS platform offers an email marketing automation solution. 

To improve your website and optimize it for higher conversions, revamp your homepage to clearly showcase your platform's benefits, such as increased email engagement and time-saving automation features. 

Optimize your website by highlighting your unique value proposition, providing clear and compelling calls-to-action, and ensuring a seamless user experience. 

Here’s how MailerLite communicates the benefits of automation:

You can also incorporate persuasive call-to-action buttons throughout the site, prompting visitors to sign up for a free trial or schedule a demo. 

Additionally, optimize the website's loading speed and ensure mobile responsiveness to provide a seamless user experience across devices. 

These enhancements result in a higher conversion rate, with more visitors converting into trial users or leads, ultimately lowering your customer acquisition costs.

3. Make Onboarding Process Easier

Simplifying the onboarding process for new customers is key to reducing churn and improving retention rates. 

As you calculate CAC for your SaaS business, consider the importance of making it easy for new users to get started with your platform and quickly realize its value. 

Streamline the onboarding process by providing clear instructions, intuitive user interfaces, and helpful resources or tutorials. 

By facilitating a smooth onboarding experience, you can increase customer satisfaction and loyalty, ultimately lowering your overall customer acquisition costs.

Consider a customer signing up for your cloud-based accounting software. 

To streamline the onboarding process, you create a series of interactive tutorials and walkthroughs that guide new users through:

  • setting up their accounts, 
  • importing data, and 
  • navigating key features. 

You can also offer personalized support via live chat or email to address any questions or concerns during the onboarding journey, such as Freshbooks does:

As a result, new users can quickly grasp the platform's functionality and experience its value firsthand, leading to higher satisfaction and retention rates. 

By making the onboarding process easier and more intuitive, it will help you reduce the likelihood of users abandoning the platform early on, ultimately decreasing your customer acquisition costs over time.

4. Think About Your Pricing

Pricing plays a significant role in determining the profitability of your SaaS business and, consequently, your customer acquisition costs. 

As you calculate CAC, consider whether your current pricing strategy is effectively capturing the value of your SaaS platform.

Evaluate factors such as market demand, competitor pricing, and customer willingness to pay to determine if adjustments to your pricing model are warranted. 

By optimizing your pricing strategy to increase revenue per customer, you can improve the cost-effectiveness of your customer acquisition efforts and drive sustainable growth.

Imagine you offer a customer relationship management (CRM) SaaS platform. 

After conducting market research and competitor analysis, you realize that your current pricing model is too complex, deterring potential customers from signing up. 

To address this, you can simplify your pricing structure by offering a tiered subscription model with clear pricing tiers based on the number of users and features included, such as Mailchimp offers, for example.

Additionally, introducing a free trial option with limited functionality, for example, will allow your prospects to experience the platform before committing to a paid plan. 

These pricing adjustments help customers better understand your platform's value proposition and choose a plan that best fits their needs, resulting in higher conversion rates and lower CAC.

5. Use Customer Referrals 

Get your current customers to bring in new ones.

It's cheaper than finding new customers yourself.

Harnessing the power of customer referrals is a cost-effective way to acquire new customers for your SaaS business. 

By offering incentives or rewards for successful referrals, you can encourage your existing customers to refer friends, colleagues, or other businesses to your platform. 

Incorporating customer referrals into your customer acquisition strategy can help reduce your CAC while also fostering a sense of loyalty and advocacy among your existing customer base.

Suppose you operate a customer support ticketing SaaS platform. 

To leverage customer referrals as a cost-effective acquisition strategy, you can implement a referral program that rewards existing customers for referring new businesses to your platform. 

Create incentives such as discounts on subscription fees, additional features, or gift cards for successful referrals.

Here’s an example of the benefits that Freshworks provides to its affiliates:

Additionally, you can provide existing customers with personalized referral links and marketing materials to share with their networks. 

As satisfied customers advocate for your platform and refer others within their industry, you will acquire new customers at a lower cost compared to traditional marketing channels. 

This referral-driven approach reduces customer acquisition costs and fosters a sense of community and loyalty among your existing customer base.

To Conclude

In short, getting good at figuring out and improving CAC is a big deal for your B2C or B2B SaaS business

It helps you make smart choices about marketing and sales, and see how well you're getting new customers.

To really make CAC work for you, keep an eye on your data, set goals you can actually reach, and keep making your CAC better by making your sales process smoother.

Also, combining CAC with other important numbers like LTV and ROI can give you a clear picture of your business's financial health, so you can spend your money wisely.

So if you’re thinking about lowering your CAC through creating content and educating potential customers, we can help.

Interested in hearing more?

Schedule a free call, and let’s discuss how we can help you optimize your sales process through the power of SEO and content marketing!

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