Don’t Get Fooled By CAC

Written by
Ross Andrewsarrow icon

Don’t Get Fooled By CAC

Written by
Ross Andrews

CAC, or Customer Acquisition Costs, is one of the most widely tracked and discussed SaaS metric especially around scaling subscription startups. In general CAC is viewed as a number that you should do your best to minimize (which you always should). But having a “high” CAC isn’t always a bad thing and can sometimes lead to making unnecessary changes. The best approach when it comes to CAC is to look at your business to understand how CAC stands up against how much your customers pay you and how long they tend to stick around.

The formula for CAC is on our SaaSy Math page (Here) and all SaaS/Subscription startups need to make sure they understand what their CAC is. Generally speaking the lower your CAC the better, but having a high CAC isn’t necessarily a bad sign. Take the following example, an up and coming SaaS startup with a $6,000 CAC and an ACV of $8,000. This puts their CAC payback period at 9 months which is a healthy number for most subscription business.

To highlight why CAC can be misleading, let’s look at a second SaaS startup that has a CAC of $2,000, but an ACV of $100 which makes their CAC payback period 20 months, not so great.

CAC looks different for different types of services and products. The first company sells a much higher touch product/service that requires a much longer sales cycle which results in a higher CAC. This is important for startup founders to understand, take a look at your business, understand how much your customer are paying you so you can see how efficiently you are paying back your acquisition costs. High CAC isn’t necessarily a bad sign, making sure that the unit economics of your acquisition and customer repayment costs are aligned and can be sustainable.

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