What is CAC?
CAC (Customer Acquisition Cost) is the total cost a company incurs to acquire a new customer. This includes all expenses for marketing, sales, onboarding, and other activities necessary to convert a potential customer into a paying customer.
CAC is one of the most critical metrics for SaaS companies and other subscription-based businesses, as it directly impacts profitability and growth potential.
Why is CAC important?
For the company
- Profitability assessment: Determines if customer acquisition is economically sustainable
- Pricing strategy: Input for setting prices that cover acquisition costs
- Budget allocation: Decisions about investment in sales vs. marketing
- Investor reporting: Key metric for SaaS valuation
For sales compensation
- Commission structuring: Ensures commissions are economically sound
- ROI on salespeople: Evaluates sales team effectiveness
- Incentive design: Balances growth with profitability
How to calculate CAC
Basic formula
CAC = (Marketing and Sales Costs) / (Number of New Customers)
Detailed calculation
Include all relevant costs:
- Marketing: Advertising, content, events, software
- Sales: Salaries, commission, tools, travel
- Onboarding: Implementation, training
- Overhead: Share of office space, management
CAC calculation example
- Quarterly marketing costs: $40,000
- Quarterly sales costs: $60,000
- New customers in quarter: 40
- CAC: ($40,000 + $60,000) / 40 = $2,500
CAC benchmarks
What is "good" CAC? It depends on industry and business model:
- SMB SaaS: $500-$3,000
- Mid-market SaaS: $3,000-$15,000
- Enterprise SaaS: $15,000-$75,000+
The most important assessment is the ratio between CAC and CLV (Customer Lifetime Value).
CAC:CLV ratio
The ideal relationship between CAC and CLV:
- 1:3 or better: Healthy business - you earn at least 3x your acquisition cost
- 1:2: Acceptable but room for improvement
- 1:1 or lower: Problematic - you're not earning enough per customer
CAC Payback Period
How long does it take to earn back CAC?
CAC Payback = CAC / (MRR × Gross Margin)
Example
- CAC: $2,500
- MRR per customer: $400
- Gross margin: 80%
- CAC Payback: $2,500 / ($400 × 0.8) = 7.8 months
Typical goal: Under 12 months payback for SaaS.
How to reduce CAC
Marketing efficiency
- Focus on channels with lowest CAC
- Improve conversion rates in funnel
- Leverage content marketing and SEO (lower cost over time)
Sales efficiency
- Improve lead qualification
- Shorten sales cycle
- Use sales enablement tools
- Optimize commission structures for efficiency
Product-led growth
- Free trials and freemium models
- Self-service onboarding
- Referral programs
CAC and sales compensation
CAC directly affects how you structure commission:
- High CAC: Requires higher ACV or longer customer lifetime to justify commissions
- Low CAC: Allows more room for aggressive commission structures
- CAC-based caps: Some companies limit commission based on CAC:CLV ratio
Related terms
- CLV/LTV: Customer Lifetime Value
- MRR: Monthly Recurring Revenue
- ARR: Annual Recurring Revenue
- Churn: Customer attrition
- NRR: Net Revenue Retention
Optimize your CAC with Prowi
Understanding CAC is crucial for designing effective commission structures. With Prowi, you can analyze the relationship between sales costs, commission, and customer value, so you can optimize your compensation for both growth and profitability. Book a demo and see how Prowi can help you find the right balance.