What is CAC
Known as one of the most important metrics in any industry of business, Customer Acquisition Cost (CAC) is the cost associated with turn a *stranger* into a *customer*, better saying, in convincing a customer to buy a product/service.
This cost is incurred by the organization to convince a potential customer.
This metric plays a major role in calculating the value of the customer to the company and the resulting return on investment (ROI) of acquisition. The calculation of customer valuation helps a company decide how much of its resources can be profitably spent on a particular customer. In general terms, it helps to decide the worth of the customer to the company.
Nonetheless one of the most relevant items in any SaaS driven company is the correlation between CAC and LTV, being a metric that corresponds to the health of a company.
Customer acquisition cost (CAC) is heavily used in companies with SaaS, B2B software sales and startups. The metric is mentioned in the publications of venture capital firms and is – most of the time – a crucial metric to an investor decide between go or no go to a company during a VC round.
The CAC ratio also appears in business-oriented magazines such as Forbes and Inc.com.
How to calculate CAC
Numerically, the customer acquisition cost is typically expressed as a ratio — dividing the sum total of CAC by the number of additional patrons acquired by the business as a result of the customer acquisition strategy.
Usually uses the sum of all the sales costs (travel costs, salaries, commissions,…) and marketing costs (ads spend, tools, salaries,…) divided by the number of new customers.
Imagine that your SaaS Company has a total cost of US$30.000,00 in the last 30 days and onboarded 100 new clients, so the CAC of your SaaS Company is 30.000/100 with the final result of US$300,00.
So for each new client you’ve onboarded, your SaaS Company spent US$300,00.
The importance of this metric
Businesses use LTV to CAC ratio (LTV:CAC) to guide spending habits for marketing, sales, and customer service. LTV:CAC shows a brief snapshot of how much customers are worth compared to how much the business is spending to attain them.