technology-strategy-marketing-for-profitable-growth • Business and Technology in Plain English
• Since 1991

Free business financial calculators to measure and manage your profitable growth

Financial terms and math don't have to be a mystery

Business Essentials
Gross Margin
Cost Markup
Set Price Using Markup
Return on Investment (ROI)

Sales and Marketing
Convert Leads to Sales

SaaS Metrics
Customer Acquistion Cost (CAC)
Customer Churn
Customer Lifetime Value (LTV)
Monthly Recurring Revenue (MRR)
SaaS Company Viability

What is Customer Acquisition Cost?

Customer acquisition cost (CAC) is the amount of money you spend on sales and marketing to acquire a subscriber.

When this sales and marketing cost is combined with your gross profit number for the same period, you can calculate an important ratio: the CAC ratio. This is a valuable metric because it puts the basic CAC cost into a longer term projection number.

Depending on how you express the ratio (we'll show you that in the calculator), it will tell you

In either case this is a key metric is measuring the profitability of your SasS business.

How to Calculate Customer Acquisition Cost and Ratio

Tips to keep in mind as you measure these costs ...

  • In the early stages of your SaaS business, it's likely that you will first acquire "friends and connected relationship" subscribers. These are the low-hanging fruit customers who will kick-start your subscriber base. This means your early numbers might be skewed since the sales and marketing expenses may not be an accurate reflection of ongoing customer acquisition costs.

  • Often the sales and marketing expenses do not occur in the same month that the new subscriber is acquired. There is typically a lag between customer awareness and purchase.

  • The more closely you track and monitor customer acquisition activities with sales, the more accurately your CAC costs and ratios will be.

  • Example ...

    Period: 8/1/2018-8/31/2018
    Monthly Subscriptions Revenue $ 600
    Cost of Goods Sold (COGS)
    Data Center Expenses $ 250
    Internet Expenses $ 150
    Gross Margin $ 200
    Sales and Marketing Expenses
    Social Media Ads $ 1500
    Content Writer $ 2200
    Sales Salary $ 4500
    Total Sales and Marketing $ 8200
    Customer Acquisition Costs
    New Subscribers Acquired 50
    Cost of Customer Acquisition $ 164
    Cost Recovered in One Year 29% (Ratio 1)
    Years to Recover Expenses 3.42 years (Ratio 2)

    Simple Customer Acquisition Cost Formula Cheatsheet

    CAC = Total sales and marketing expenses for the month / Number of new subscribers acquired during the month.

    Gross margin = Monthly subscription revenue - monthly sales and marketing expenses (COGS)

    Ratio 1: How much of the month's sales and marketing expenses will be recovered in one year:

    CAC Ratio 1= (Gross margin *12) / Sales and marketing expenses

    Ratio 2: How many years it will take you to recover your initial sales and marketing investment:

    CAC Ratio 2=Sales and marketing expenses / (Gross margin *12)


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