SaaS CAC: Understanding Customer Acquisition Costs

SaaS companies can spend a lot of money acquiring new customers—the average customer acquisition costs (CAC) for the industry is a whopping $702.

This is why SaaS cost management is so important. Minimizing your CAC is the secret to skyrocketing your revenue and maximizing customer value.

As an SEO agency, we know managing customer acquisition costs is critical for every SaaS business. This blog covers the top strategies for reducing CAC, why you should monitor this metric, and how to calculate CAC.

What We'll Cover:

What are SaaS Customer Acquisition Costs?

SaaS customer acquisition cost (CAC) is one of the most critical metrics in SaaS. It describes how much it costs to acquire new customers.

It's imperative to keep up-to-date with your CAC. It helps you understand how you can maximize your revenue and allocate your resources to provide the most value to your users.

Because of this, CAC works hand-in-hand with customer lifetime value (CLV). 

Your CLV is how much value you gain from users throughout their relationship with your business. 

If your CAC is higher than your CLV, you're running at a loss. 

Importance of Monitoring Customer Acquisition Cost

Every SaaS business should monitor CAC for a number of reasons: to improve CLV, make strategic marketing and sales decisions, boost sales and ad marketing efforts and provide more value.

Let’s explore these further. 

Improve Your CLV

Your CAC reflects your CLV and vice versa – the higher your CLV, the lower your CAC. The more you improve your CLV, the lower your CAC. Ideally, SaaS providers need to boost their CLV as high as possible because that shows you're providing maximum value to your customers and they're staying with your business for a more extended period.

When you start monitoring your CAC, you must also monitor your CLV. Once you understand where you're at with these two metrics, you can set realistic goals for your progress and monitor them quarterly to track your performance.

If your CLV is decreasing, it's time to deploy tactics to boost customer satisfaction, refine your product offering and reduce customer churn. 

Make Strategic Decisions

Your CAC gives you insights for strategic decision-making. For instance, if you're running three ad campaigns to determine which produces the most value and costs the least, CAC is the perfect metric to analyze.

This will only be enough if you measure the number of clicks and conversions each ad campaign generates. One ad campaign will have a lower Cost Per Click (CPC) than all the other ad campaigns. 

This data allows you to end the campaigns with the higher CPCs and focus your marketing budget and resources on the campaign that produces the most revenue at the least cost. 

Optimize Your Payback Period

Your payback period is the time it takes for your business to make back the money it spent acquiring customers. Regenerating these funds should be a top priority for every new customer you gain. 

The lower your CAC, the quicker your payback period. By monitoring your CAC, you'll be able to pinpoint exactly how long it will take to earn your money back. 

Identify the Top Performing Marketing Channels 

Similar to helping SaaS providers make strategic decisions, monitoring your CAC also identifies the best-performing marketing channels. 

You can determine which channels have the lowest CAC and produce the most value, whether that's social media marketing, email marketing, blogs, forums, communities, or promotions.

Strategies to Reduce SaaS CAC

There are several ways to reduce customer acquisition costs –- you must target the right audience, prioritize organic marketing channels, and leverage referral marketing. 

Your business model should also include loyalty marketing, segmenting customers by CAC, and improving customer retention. 

Here is how you can acquire customers while minimizing costs.

Target the Right Customer

One of the simplest ways to reduce SaaS CAC is to target the right audience. Conduct an in-depth analysis of your ideal buyer personas to understand which users would be interested in your service and more likely to convert.

This approach helps your marketing team develop personalized content, marketing campaigns, customer journeys and sales funnels. SaaS providers can reduce the number of stages buyers have to go through to reach conversion, making acquiring new customers more cost-effective.

Prioritize Organic Channels

Organic channels cost less than paid channels and thus reduce CAC.
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Though organic channels and inbound marketing require more time to nurture leads to conversion, these solutions cost less to acquire clients than paid channels.
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A few of the vital organic channels to reduce CAC for SaaS include:9

• Email marketing: Email marketing is among the best organic marketing channels for SaaS businesses. Segment your target audience based on their CAC and send personalized content to guide these users to convert at a lower cost. Focus on your email design and use automation tools to establish and track a drip campaign.
  
  
• Blogs: Leverage blogs to offer valuable content that appeals to every stage of the customer journey. You can create targeted content to inform prospects about your platform and how it works, provide insights into different features for current users, and share content to retain existing customers.
  
  
• SEO: Search Engine Optimization is one of the top-performing organic marketing channels. Yes, this approach does take a lot of time and trial and error. But if executed correctly, SEO can be a game-changer for CAC. The trick is to research and rank for the right keywords and audit your content regularly to maintain a high ranking in search engines.
  
  
• Social media: Social media is a fantastic tool for developing a user community, publishing engaging content, and sharing social proof. This will help you organically convert target users and lower your CAC.  

Implement Referral Marketing

Referral marketing is a fantastic way for SaaS providers to reduce CAC. By offering users incentives to refer clients to your business, you can minimize the cost of acquiring new customers. 

Referral marketing generates 3 to 5 times more conversions than any other marketing channel, and referred customers produce 25% more profit and are 18% more loyal than other customers. 

How do you implement a referral marketing program that works? Here are a few essential tips to follow:

• Establish program parameters: Define your referral program's goals and how you plan to promote it. Set a program duration, so you have a window to measure your results. 

• Offer attractive incentives: Your reward must offer users value or enhance their experience with your service. You can create a referral incentive or a double-sided reward for referrals and referees. 

• Choose the right software: Use software to automate and manage your referral program. Find platforms that specialize in SaaS referral programs. 

• Build a referral community: Managing and engaging with referrals is much easier if you centralize them. Find a platform, like Slack, to host a community and set up meetings to gather feedback from referrals and address their questions or concerns.  

• Monitor and analyze performance: It's imperative to continuously monitor and analyze your referral marketing performance. Your software can automate these reports for you and provide insights on improving your approach. 

Promote Customer Loyalty

Focusing on customer loyalty encourages existing users to generate more clients for your business. 
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This means you won't have to invest as much money in acquiring new customers﹣your clients will do this for you.
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60% of customers involved in loyalty programs have better experiences with these companies because they believe their relationships are more than transactional. These customers also have a 12% to 18% higher CLV than non-loyalty program members — and as we know, the higher your CLV, the lower your CAC.

These are vital tips to run a successful loyalty program:

• Personalize loyalty programs: Tailor your content and approach to different customer segments. Only some of your users will require the same strategy or find value in the same incentives, and segmenting users for your loyalty programs solves this. 

• Provide customized support: Make your loyal customers feel special and deliver customized support channels. It should be simple for these members to contact your support team and receive help when needed. 

• Track your performance: Use software to track and measure your loyalty program. These solutions can also help you design your program and generate reports to monitor your performance.

Create CAC Customer Segments

Another way to keep your CAC low is to segment your customers based on their CAC. This strategy is effective because you can identify which segments have the most negligible value and offer the most. Customers with the highest CAC—especially if this is a significant difference to users on the other end of the spectrum—are a concern for your business.

You need to understand why these customers have a high CAC, what channels you used to acquire them, and how you can offer them more value. These insights can also prompt you to rethink different subscription tiers and determine whether customers believe your prices are worth your product.

Segmenting your users highlights which customers your sales team should focus on.

Improve Customer Retention

Retaining customers will increase your CLV because the longer customer relationships last, the more value they will provide for your business. And it's much easier and cheaper to retain an existing customer than acquire a new one.

Establishing a customer retention strategy allows you to focus less on acquiring new customers and more on optimizing your existing customers' experience. This focused approach can reduce your CAC and help you turn users into brand advocates.

Here are a few tips to improve your SaaS customer retention:

• Offer exceptional customer service
• Gather and implement user feedback
• Deliver a straightforward onboarding experience
• Monitor customer retention metrics
• Continuously improve your product  

How SEO Can Lower Acquisition Costs  

Effective SEO strategies can reduce CAC. Paid ad campaigns inevitably have a higher acquisition cost than organic SEO campaigns. So, while paid ads can help SaaS companies generate loads of leads and conversions, this stops once your budget runs out. 

Fortunately, organic SEO campaigns will drive traffic long after you've invested in SEO strategies. Yes, these campaigns generate results slower than paid ads, but the results last longer and don't cost as much, leading to a lower CAC.

Need help with your SEO strategy? Check out our blog for valuable insights and tips.

Calculating CAC in SaaS 

Calculating CAC in SaaS is very easy. Divide the total cost of sales and marketing by the total number of acquired customers.

CAC = Total Sales and Marketing Expenses / Total Customers Acquired

But you can't just use this calculation once. Measure your CAC every quarter to assess your performance and maintain your revenue. 

Leverage SaaS CAC Optimization and Skyrocket Your Revenue

To lower SaaS CAC and boost lifetime value, your SaaS company should focus on retaining existing customers, improving customer loyalty, and starting a referral marketing program that works.

Your marketing team must also target the right customer for your business and prioritize organic marketing channels to keep your customer acquisition cost as low as possible.

Need help lowering your CAC? Contact MADX Digital for an SEO strategy tailored to your business.