Learn What CAC Payback Can Tell You About Your Business
The SaaS Business Metrics Series, Part 2: CAC Payback
This article continues Fahrenheit’s series exploring business metrics relevant to the Software as a Service (SaaS) industry. Each article briefly explores a relevant SaaS key metric, including the definition, the applicable business contexts, and its use. The focus for this article is CAC Payback.
- Definition: CAC Payback refers to the Customer Acquisition Cost Payback period. CAC Payback is calculated as follows for a given period: sales and marketing expense/(new Committed Monthly Recurring Revenue * Gross Margin Percentage).
- Applicable business context: CAC Payback is a key metric for growth stage SaaS companies and their investors. It measures the efficiency and the profitability of the sales and marketing organizations in terms of the time it takes to recoup sales and marketing spend.
- Use: When trended over several quarters, this metric helps management monitor the return on their sales and marketing investment, as well as provides a leading indicator of sales team focus and the pricing environment. Efficient sales and marketing organizations have shorter CAC Payback periods as the departmental spend produces high margin business. A deteriorating CAC Payback period may signal growing pricing pressure, reduced deal flow, or a shift away from the target customer profile. Timely CAC Payback reporting allows management to proactively source and respond to these and other dynamics negatively impacting the business.
If your company’s scale is outpacing your processes, which in turn is causing growing pains, regular fire-drills, and reduced profitability, The Fahrenheit Group has professionals who can help. We understand your industry and your challenges and are experienced in working closely with management to drive your business to the next level of success. Please contact us to find out how we can help.
Jonathan Kelley is a professional within our Finance and Advisory practices. He is a versatile finance professional specializing in providing finance and operations leadership to SaaS/PaaS, enterprise software, and professional services clients. He can be contacted at email@example.com or 919-523-2102.