How to Accurately Calculate Customer Acquisition Cost (CAC) in SaaS Companies

Growing your SaaS business is exciting, but it's easy to get caught up in the chase for new customers and lose sight of the bottom line. That's where understanding your Customer Acquisition Cost (CAC) comes in. Knowing how much it costs to acquire each new customer and optimizing this cost is essential for sustainable growth.

In this post, we'll explore two effective CAC formulas and help you figure out which one is right for your business. Plus, we'll introduce you to some related SaaS metrics that can give you a more complete understanding of your customer acquisition efforts.

Ready to optimize your spending and drive sustainable growth? Let's dive in!

Understanding Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the total cost your company incurs to acquire a new customer. It includes expenses related to marketing, sales, and any other activity directly tied to customer acquisition.

CAC answers the critical question: “How much does it cost to acquire one customer?”

For SaaS companies, understanding CAC is essential for budgeting, scaling, and improving profitability. It serves as a guiding metric for how efficiently you’re turning marketing and sales investments into actual customers.

Why is Calculating CAC Important?

SaaS companies often operate on a recurring revenue model, where customer retention drives long-term profitability. Without a clear picture of CAC, you risk spending inefficiently on customer acquisition efforts, which can lead to cash flow issues or unsustainable growth.

Here’s why CAC is a must-have metric for SaaS leaders:

• Strategic Decision-Making: CAC helps you assess the ROI of your marketing and sales efforts, enabling you to allocate resources to the most effective channels.
• Investor Confidence: Investors look closely at CAC in combination with metrics like LTV and payback period to assess your growth potential and unit economics.
• Scalability: A scalable SaaS business model relies on reducing CAC while maintaining or increasing LTV.

By calculating CAC, you gain actionable insights to achieve sustainable growth.

B2B SaaS CAC: What’s Different?

For B2B SaaS companies, calculating Customer Acquisition Cost (CAC) can sometimes feel a bit more complex. Longer sales cycles mean prospects need more nurturing, which adds to costs. 

Larger deal values come with higher stakes, requiring tailored outreach and multiple touchpoints. On top of that, the involvement of multiple decision-makers—like executives, IT teams, and end-users—makes the process even more challenging. All of this means it’s important to approach CAC calculation with precision.

For B2B SaaS, the weighted average CAC method is especially effective. It helps you account for the different costs and performance of each channel, giving you a clearer picture of what’s working. 

With this method, you can pinpoint the strategies that deliver the best results and focus your efforts where they’ll make the most impact. This makes it easier to decide where to double down and drive meaningful growth.

What Formula is Used for CAC?

The CAC formula is simple:

CAC = (total cost of sales and marketing) / (# of customers acquired) 

While the formula itself is straightforward, applying it to real-life scenarios can be tricky. Different acquisition channels, indirect costs, and long sales cycles add complexity when calculating your true CAC.

Keep reading to learn how to navigate these challenges and choose the right CAC calculation method for your business.

CAC Formula: Two Methods to Calculate Your Costs

Let’s walk through two commonly used approaches: the basic CAC formula for simplicity and the weighted average CAC formula for a more nuanced view.  Both methods provide valuable insights, but the latter can help you identify your highest-performing channels and refine your acquisition strategy.

Basic CAC Calculation

The most basic way to calculate CAC is to take the total cost of sales and marketing efforts over a given time period and divide that by the number of new customers acquired during that period.

For example:

Total cost of sales and marketing efforts: $100,000
Number of new customers acquired: 100
CAC: $100,000 / 100 customers = $1,000

This approach is simple and easy to understand, but it has some limitations.

It does not take into account the lifetime value (LTV) of a customer, or the fact that some marketing efforts may have a longer-term impact on customer acquisition.

Weighted Average CAC Calculation

A more sophisticated approach is to use a weighted average CAC calculation, which takes into account the fact that different marketing channels may have different costs and effectiveness.

To calculate the weighted average CAC, you would first determine the cost and number of customers acquired through each marketing channel. 

You would then weigh these values based on the relative importance or effectiveness of each channel, and sum them up to get the overall CAC.

For example:

Marketing channel 1: Email marketing
Cost: $10,000
Number of new customers acquired: 20
Weighted value: (20 customers * $10,000 cost / 20 customers) = $10,000

Marketing channel 2: Social media advertising
Cost: $20,000
Number of new customers acquired: 40
Weighted value: (40 customers * $20,000 cost / 40 customers) = $20,000

Marketing channel 3: Referral program
Cost: $5,000
Number of new customers acquired: 10
Weighted value: (10 customers * $5,000 cost / 10 customers) = $5,000

Total weighted value: $10,000 + $20,000 + $5,000 = $35,000
Total number of new customers acquired: 20 + 40 + 10 = 70
Weighted average CAC: $35,000 / 70 customers = $500

In this example, the weighted average CAC is $500, which is lower than the basic CAC calculation. 

This is because the referral program was particularly effective at driving new customer acquisition at a lower cost, and therefore had a higher weight in the calculation.

It's important to note that the weighted average CAC calculation requires data on the cost and number of customers acquired through each marketing channel, as well as a way to weigh the relative importance or effectiveness of each channel. 

When to Use Basic vs Weighted Average CAC Formulas

The basic CAC calculation is simple and easy to use. It’s ideal for SaaS companies that are just starting to track their acquisition costs or have limited data. However, this method has its limitations. It doesn’t account for the varying costs and effectiveness of different acquisition channels.

The weighted average CAC calculation offers a more accurate and detailed view. It analyzes the cost and performance of each channel. This helps you see which channels are most effective and where to double down to drive your growth into T2D3! 

While it takes more time, effort, and data, the insights it provides can help you allocate resources more effectively.

What Should Be Included in Customer Acquisition Cost?

To calculate CAC accurately, you need to include all direct and indirect expenses associated with acquiring new customers. These may vary based on your sales and marketing strategies but generally include:

• Marketing Costs:
  • Paid advertising (Google Ads, LinkedIn, etc.)
  • Content creation and promotion
  • SEO tools and analytics platforms
    
    
• Sales Costs:
  • Salaries and commissions for sales teams
  • CRM software and other sales enablement tools
  • Sales travel and events
    
    
• Overhead Costs:
  • Agency fees
  • External consultants

Accurate CAC calculations rely on including all relevant costs, not just high-visibility. Overlooking indirect costs can lead to underestimating your true CAC, which could distort your decision-making.

Key SaaS Metrics to Complement CAC

CAC alone doesn’t give the full picture of your SaaS company’s performance. To truly understand the effectiveness of your acquisition strategy, you need to pair CAC with other SaaS metrics.

Two key metrics to consider are the LTV:CAC ratio and the CAC payback period. 

LTV:CAC ratio

Once you have your CAC, it is important to use the LTV:CAC ratio, which compares the lifetime value of a customer to the cost of acquiring that customer. The LTV:CAC ratio is calculated by dividing the lifetime value of a customer by the CAC.

For example:

Lifetime value of a customer: $5,000
CAC: $1,000
LTV:CAC ratio: $5,000 / $1,000 = 5

The LTV:CAC ratio is a useful metric because it helps companies understand the long-term value of their customer base and how much they can afford to spend to acquire new customers.

A high LTV:CAC ratio is generally considered to be a good sign, as it indicates that the company is generating a good return on its investment in customer acquisition.

CAC Payback Period

This metric answers the question of “When do I get my money back?”.

The CAC payback period is another metric that can be used to evaluate the effectiveness of a company's customer acquisition efforts. It is the amount of time it takes for the revenue generated from a new customer to pay back the cost of acquiring that customer.

To calculate the CAC payback period, you would divide your CAC by the average revenue generated per customer per month. 

For example, if the CAC is $1,000 and the average revenue generated per customer per month is $100, the CAC payback period would be 10 months.

The CAC payback period is a useful metric because it helps companies understand how long it takes for their customer acquisition efforts to pay off. A shorter payback period is generally considered to be more favorable, as it indicates that the company is generating a good return on its investment in customer acquisition.

It's important to note that the CAC payback period is not a standalone metric and should be considered in conjunction with other metrics such as LTV:CAC ratio and overall profitability.

A company with a high LTV:CAC ratio and a short payback period is likely to be more successful in the long run than a company with a low LTV:CAC ratio and a long payback period.

Here is an example chart showing the CAC payback period calculation:

CAC: $10,000
Average MRR per customer: $1,000
CAC payback period: $10,000 / $1,000 = 10 months

SaaS CAC Benchmarks

Benchmarks can provide valuable context when evaluating your Customer Acquisition Cost (CAC) and related metrics. However, these numbers can vary significantly depending on factors like industry, business model, and customer type.

What is a good LTV:CAC ratio?

In general, an LTV:CAC ratio of 3-5 is considered to be good, while a ratio of more than 5 is considered to be excellent. However, it's important to keep in mind that these are just rough guidelines and may not apply to all businesses.

What is a good CAC payback period?

As for CAC payback period, less than 12 months is generally considered to be more favorable for investors (some even push as far as 9 months), as it indicates that the company is generating a good return on its investment in customer acquisition. 

However, the appropriate payback period will depend on a variety of factors, including (and especially) the lifetime value of a customer, your company's profit margins, and your overall business model.

It's worth noting that these benchmark numbers should be used as a guideline, and not as strict targets. It is important for businesses to understand their specific circumstances and determine the metrics that are most relevant and meaningful for them.

How to Optimize and Lower Your SaaS CAC?

Reducing CAC isn’t just about slashing budgets. It’s about increasing efficiency and getting more out of your existing resources. 

Here are actionable strategies to help you lower CAC while maintaining healthy growth:

1. Double Down on High-Performing Channels

Use the weighted CAC formula to identify your most cost-effective marketing channels. For example, if referral programs are driving lower CAC compared to paid ads, allocate more resources to referrals.

2. Align Marketing and Sales Teams

Ensure both teams are working together to optimize the buyer journey. Misalignment can lead to inefficiencies that inflate CAC. Consider shared KPIs, such as lead-to-close rates, to measure success.

3. Automate and Streamline Processes

Use tools like HubSpot to automate repetitive tasks like lead nurturing or follow-ups. This reduces the cost of manual labor and accelerates the sales process.

4. Focus on Customer Retention and Upsells

A retained customer is significantly cheaper to maintain than acquiring a new one. Improve onboarding, implement retention programs, and upsell your existing customer base to offset acquisition costs.

5. Test and Refine Messaging

Run A/B tests on campaigns and landing pages to determine what resonates with your audience. A strong, optimized campaign improves lead quality, which shortens sales cycles and reduces CAC.

6. Experiment with Pricing Models

Introduce tiered pricing or freemium models to attract more qualified leads. While this may increase upfront CAC, it can result in a higher LTV and better unit economics.

Beyond CAC: Building a Growth Strategy That Works

Whether you’re a SaaS company or a B2B SaaS business, optimizing CAC is essential for driving sustainable growth. But, CAC optimization doesn’t happen in isolation. It’s part of a larger strategy that includes aligning teams, refining your go-to-market approach, and ensuring every dollar spent delivers measurable value.

At Kalungi, we help B2B SaaS companies tackle these challenges head-on. Using the proven T2D3 framework, we create tailored GTM strategies to drive faster growth and build sustainable success.

Ready to take your SaaS business to the next level? Let’s talk.