The Cost of Growth
Customer Acquisition Cost (CAC) is the total cost of sales and marketing efforts required to acquire a new customer. In SaaS and subscription models, analyzing CAC in isolation is useless; it must be paired with Lifetime Value (LTV).
Calculating Blended vs. Paid CAC
Blended CAC includes all marketing spend divided by all new customers (including organic). Paid CAC isolates marketing spend on paid channels divided only by customers acquired through those channels.
| Metric | Formula | Good Target |
|---|---|---|
| CAC | Total Sales & Marketing Spend / New Customers | Varies by industry (e.g., $500 for mid-market B2B) |
| LTV:CAC Ratio | Lifetime Value / Customer Acquisition Cost | > 3:1 |
| Payback Period | CAC / Monthly Recurring Revenue (MRR) per user | < 12 months |
Common Mistakes
- Ignoring Sales Salaries: Many teams only calculate ad spend when calculating CAC, omitting the base salaries of the sales and marketing teams.
FAQ
What is a good LTV:CAC ratio?
3:1 is the industry standard for a healthy, growing SaaS business. 1:1 means you are losing money on every customer (once operating costs are factored in). 5:1 means you are under-investing in marketing and leaving growth on the table.