## Places Of Interest

### How to Calculate CaC for SaaS and Considerations

This is actually one of the more straight forward performance metrics that is calculated in the SaaS industry. However, it is really important to understand if you are scaling up and is involved in a few other important metrics. So, it is at the heart of SaaS business analysis.

Check out full SaaS financial models here (and recurring revenue business models).

In general CaC means customer acquisition costs. That pertains to all the direct costs related to acquiring new customers. This could include sales teams, marketing activities, ad spend, SEO service spend, and any other costs that are specifically to acquire more customers directly.

Your entire organization's goal is likely to acquire more customers if you are ramping up a SaaS business (except maybe your legal team and accounting), but we are limiting costs to essentially anything that can be classified as Sales and Marketing.

So, to do the calculation, you simply divide the total Sales and Marketing costs in a period by the total customers added in a period. It is very likely that some of your advertising and marketing activities may not yield new customers for months or even years. This is why it is just an average calculation because you can't tie every single new customer directly to the source cost of the acquisition.

Because of the above reality, sometimes the context of your CaC calculation is really important. What was going on during the period measured, how long is the period measured, and so it may be hard to quantify until you have some data behind the number and years of operations.

Calculation: (Total Sales and Marketing Costs in Period) / (Total New Customers Acquired in Period)

It is really important to understand how much value you are getting from customers over the time they are active and compare that to the average cost to acquire. If the lifetime value of a customer is less than the cost to acquire a customer, the ramping is not sustainable and your SaaS business will lose money.

You can also look at the number of months it takes a customer to pay back the cost to acquire. If that number of months is longer than the average customer retention, you have a problem.

Tracking CaC over time is healthy and you can do it on a monthly, quarterly, or annual basis. Comparative analysis is a good way to see how your efforts of customer retention are going and if the unit economics make sense.