It is also possible to break down the formula by channel. For instance, you can calculate CAC for paid advertising, referrals, outbound sales, etc. It’s important to note that CAC should be measured regularly to track the efficiency of sales and marketing efforts over time and compare it against the LTV (lifetime value) of a customer to evaluate if the business is sustainable.
A successful Customer Acquisition Cost (CAC) in a SaaS company is lower than the Lifetime Value (LTV) of a customer. LTV is the total revenue that a customer will generate for the company over the lifetime of their relationship. The LTV-to-CAC ratio is also used to measure the profitability of a SaaS business, and a ratio of 3:1 or higher is generally considered healthy.
It’s important to note that every business is unique and has different goals, industries, and target audiences that can affect LTV, CAC, and ratios. Therefore, it can be hard to provide a general benchmark for CAC, as it can vary greatly depending on the specifics of the business.
For most SaaS companies, a CAC of less than 3-5x of the gross margin per customer per year is considered successful. The lower the CAC in relation to LTV, the better, as it indicates that the company is acquiring customers at a low cost and that they have a high potential to generate revenue over time.
It is also worth noting that there are other important factors to consider, such as unit economics (gross margin, churn, etc.). Those metrics should be considered together to provide a comprehensive overview of the company’s health.