Calculating Customer

Acquisition Cost (CAC) for

SaaS

I see Customer Acquisition Cost (CAC) calculations done wrong all the time. If there was one number
youd want to have right as a demand generation professional, itd be this one, so learn it like the back of
your hand.
Your CAC should go hand-in-hand with your Customer Lifetime Value in assessing the health of your
marketing. If you are an ecommerce company, then your CAC is going to be relatively straightforward, but
your LTV may be more challenging. If you are a SaaS company, then your CAC is going to be more
difficult, and your LTV a bit more straightforward.
When you combine CAC and LTV, your are going to come out with a ratio. That ratio will range from
telling you the organization is crashing and burning, or thriving. This is one key ratio for looking toward
investment dollars as well.
CAC:LTV
Just to get a sense of the ratios before diving into the formulas

A ratio of less than 1:1 means your in trouble. Deep, deep trouble.
A ratio of 1:1 means you are losing money on every customer.
A ratio of 3:1 means you are thriving quite well. Nice work.
A ratio of 4:1 or greater means you need to be spending more and could be growing faster.

Ive heard CAC expressed in multiple methods of calculations, ranging from simple (usually this doesnt
take into account people costs, reporting software, etc., and just focuses on campaign costs) to complex.
You need all the variables to calculate CAC, anything less is uncivilized. So I just focus on what others
refer to as the complex model (I guess its complex its pretty straightforward really.)
So without further adieu
CAC= (Marketing Campaign Costs + Wages + Software + Services + Overhead) / Customers Acquired
Looking at this piece by piece:

Marketing Campaign Costs: All costs associated with the production of campaigns (paid search
spend, direct mail cost, etc).
Wages. The wages of your sales and marketing teams with commissions and bonuses taken into
account.
Software. List out all your marketing software (yes, you use marketing automation and Salesforce
for multiple functions within the company, so allocate the total cost per license to your sales and
marketing teams to obtain numbers like this)
Services. Did you use any contractors or consultants?
Overhead. Phones, desks, computers, etc. Everything that the marketing and sales team needed to
do their job should be included.

I have a spreadsheet that will calculate this for you, just enter in the items and calculate a quarterly CAC.
You can view it here in Googledocs.
**One key to remember in calculating CAC is to know your sales cycle. If you are calculating CAC
quarterly, you cannot match costs and customers acquired in the same quarter. A 90-day sales cycle would
use costs from the prior quarter against the customers acquired in the current quarter to calculate the most
accurate CAC.

Sample CAC Calculation

(All numbers are annual)
Sales Cost

Sales (AE/SDR) Sales Eng Quarter

Quarter

Team composition
On target earnings
Salary Cost
Salary + Overhead

13
1
$125,000 $65,000 $10,416.67 $5,416.67
$1,625,000 $65,000 $135,416.67 $5,416.67
$2,193,750 $87,750 $182,812.50 $7,312.50

Total Team Cost

Software Costs
Overhead
Adjusted Team Cost

$2,281,500

Marketing Cost
No. of Marketing people
Average cost per person
Marketing Programs Spend
Marketing Software
Marketing Overhead
Total Marketing Costs

$ 65,000.00

$190,125.00

$ 45,000.00

$2,391,500

5.0
$64,000
$250,000
$65,000
$50,000
$685,000

$199,291.67



$5,333.33
$20,833.33

$57,083.33

Use this
format to
calculate your
customer
acquisition
cost. Your
CAC
will be
relevant when
you provide a
ratio against
your customer
lifetime
value