Customer Acquisition Cost (CAC) Ratios

The most common CAC Ratio is defined as the Sales and Marketing Expense divided by the New Subscription Bookings. The Bookings number should be matched with the associated Sales and Marketing expense to the extent it is a practical exercise. Typically, Enterprise SaaS companies use figures from the same year since variations in the Sales Cycles makes attribution difficult and, usually, not very valuable. Small and Mid-Market SaaS Companies typically use the prior quarter or month since the sales cycle is shorter for these businesses. Business-to-Consumer (B2C) SaaS companies typically use the prior month’s Sales and Marketing expense because the Go-To-Market strategy focuses on Call-to-Action marketing, which leads to a quick customer response. The CAC Ratio can be interpreted as the Sales and Marketing investment needed to acquire $1.00 of new Subscription Bookings.

Best practice for SaaS companies is to segment the CAC Ratio into two different ratios according to the type sales activity defined as New Customer and Expansion. In my experience, the CAC for Expansion Bookings is approximately one-third the cost of acquiring New Customers. Therefore, distinguishing the CAC for each type of sale aids Go-To-Marketing strategy and management. When you use these specific measures, also provide a Blended CAC Ratio, which is the aggregate calculation for the business.

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