The CAC profile in SaaS businesses includes multiple metrics that provide insight into sales and marketing efficiency, such as gross expenses, unit cost of CAC, CAC payback, CAC ratio, and LTV to CAC.
To obtain reliable CAC metrics, it is crucial to include fully burdened costs for sales and marketing, align the CAC calculation with the sales cycle, and correctly allocate expenses between new and existing customers.
Deep dives
Understanding the CAC Profile
The CAC profile is a comprehensive way to analyze customer acquisition costs in a SaaS business. It includes multiple metrics that provide context and insight into sales and marketing efficiency. By looking at various metrics together, such as gross expenses, unit cost of CAC, CAC payback, CAC ratio, and LTV to CAC, companies can gain a deeper understanding of their overall performance and identify areas for improvement.
Common Mistakes in CAC Calculations
When calculating CAC, there are common errors that can undermine the accuracy of the metric. These include failing to include fully burdened costs for sales and marketing, not aligning the CAC calculation with the sales cycle, and incorrectly allocating expenses between new and existing customers. Taking these factors into account is crucial for obtaining reliable CAC metrics and gaining a true understanding of customer acquisition costs.
Considering the Maturity of CAC Calculations
As a SaaS company matures, its CAC calculations should evolve. Early stage companies may focus on simple calculations, while mid-market and enterprise companies may need to analyze CAC by different customer segments, consider cohort analysis, and account for new versus existing customer spend. By adapting the CAC calculation to fit the specific stage and dynamics of the business, companies can gain more accurate insights into their customer acquisition costs.
Understanding and Analyzing CAC Metrics
Tracking CAC metrics is not enough; it is important to analyze and understand their implications for the business. CFOs and finance leaders should examine the overall financial profile, consider the alignment of go-to-market strategies, pricing, and product roadmap, and look for patterns and trends in the CAC metrics. This analysis can help identify areas of inefficiency, opportunities for improvements, and provide strategic insights for the business.
SaaS companies have a lot of different efficiency metrics. And customer acquisition cost — the amount of money a company spends to get a new customer — is a ubiquitous SaaS metric.
How can SaaS companies achieve financial stability and transparency and calculate CAC correctly? What if we have basic calculations and our company matures? How are other metrics involved in the company's performance?
In this episode of The Role Forward, Joe Michalowski welcomes Ben Murray, the founder of The SaaS CFO. Joe and Ben get into SaaS, CAC calculations, and CAC profiles. They discuss the importance of having fully burdened cost centers to calculate CAC and describe LTV to CAC, CAC payback period, and CAC ratio metric calculating.
Guest-at-a-Glance
💡 Name: Ben Murray 💡 What he does: Ben is the founder of The SaaS CFO. 💡 Company: The SaaS CFO 💡 Noteworthy: Ben has worked in finance and accounting for 25+ years. He has been a SaaS CFO for 8+ years and began his career in the FP&A function. From debits and credits to financial forecasting and M&A, Ben's experience has not just been siloed in the accounting or finance track but on both sides of the desk. His operations background at several airlines has improved his ability to translate operational performance into improved financial understanding and foresight. 💡 Where to find Ben: LinkedIn | Website
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