What is CAC Payback and Why Do We Need to Track It?
The software company you run is complex, with numerous metrics to track and understand, not the least of which is your Customer Acquisition Cost (CAC) and the associated payback period. Understanding these crucial aspects of your business is paramount to managing your expenses and driving your company forward.
The CAC metric represents the money spent to acquire a new customer. Whether through marketing campaigns, SaaS sales efforts, or even a giveaway, every dollar spent pursuing a new customer is added up. However, the raw CAC value must provide a comprehensive view of the situation.
This is where the CAC Payback comes in. This metric measures the time it takes for the software company to recoup the money back that they spent on customer acquisition. For example, if the company spent $1000 to acquire a customer contributing $200 monthly, the CAC Payback period would be five months.
Now, why is this important? Tracking CAC Payback helps the company understand how long it takes to see a return on its investment in customer acquisition. If the CAC Payback is within a few months, the company quickly converts marketing and sales costs into positive revenue. However, if the CAC Payback period is stretched into a year or more, the company’s acquisition strategy might need a rethink.
Acquiring new SaaS customers is a balancing act. The company must aim for a steady stream of new customers while keeping acquisition costs reasonable. A software tool for tracking these metrics can be instrumental in helping you keep an eye on these numbers.