Unlock profitable growth for your SaaS business! Discover what CAC is, how to calculate it correctly, and why mastering this metric can make or break your scaling journey.
What is CAC
Customer Acquisition Cost (CAC) is the average cost of acquiring a new customer. It includes everything you spend on marketing, sales, and any related efforts divided by the number of new customers gained.
In SaaS and subscription businesses, controlling CAC is essential because if it costs too much to acquire a customer relative to what they pay you (ARR/MRR), your business model becomes unsustainable.
Why CAC Matters
Here’s why founders, CFOs, and VCs always watch CAC closely:
- Profitability Signal – CAC shows if your growth engine is economically viable.
- Cashflow Impact – High CAC can strain your cash reserves, especially during scaling.
- Sales & Marketing Efficiency – It tells you how well your GTM (Go-to-Market) efforts are working.
- Fundraising Readiness – Investors love companies with a healthy CAC relative to LTV (Lifetime Value).
- Pricing and Positioning Feedback – Sometimes, high CAC points to a misaligned target market or poor value messaging.
How to Calculate CAC
Basic Formula
CAC = Total Sales and Marketing Expenses ÷ Number of New Customers Acquired
Where expenses include:
- Salaries of sales and marketing teams
- Ad spend (Google, LinkedIn, Meta, etc.)
- Agency fees
- CRM/Martech tool costs
- Content creation and events tied to acquisition
Example:
If you spend ₹10,00,000 in a quarter and acquire 200 new customers:
CAC = ₹10,00,000 ÷ 200 = ₹5,000 per customer
➕ CAC Payback Period CAC is more powerful when paired with CAC Payback:
How many months it takes you to recover your acquisition cost from the customer’s payments.
CAC Payback Period = CAC ÷ Monthly Gross Profit per Customer
Example:
If CAC = ₹5,000 and Monthly Gross Profit per customer = ₹1,000:
CAC Payback = 5 months
Healthy Benchmark:
- For SMB SaaS → 12 months or less
- For Enterprise SaaS → up to 18 months can be acceptable
Common Mistakes to Avoid
❌ Ignoring indirect costs – Always include overheads like tools and team costs.
❌ Counting all leads – CAC calculation should be based on new paying customers, not just leads or trials.
❌ Skipping churn impact – CAC needs to be considered alongside churn and LTV for the full picture.
❌ Single-channel view – If you acquire across multiple channels, always add up total expenses — don’t isolate one channel unless analyzing separately.
❌ Not revisiting CAC – As you scale, your CAC can shift. Always track CAC per cohort or quarter.
Pro Tips
- Track CAC by Channel – CAC per channel (e.g., paid search, content marketing, events) helps double down on the most efficient acquisition sources.
- Benchmark Against LTV – Healthy businesses usually have LTV:CAC ratios of 3:1 or better.
- Use CAC as a GTM Feedback Loop – High CAC might hint at wrong ICP (Ideal Customer Profile) or ineffective messaging.
- Model CAC at Different Stages – Your CAC at early-stage (experimentation) and growth-stage (scaling) may vary. You need to plan your cash requirements accordingly.
Bottom Line
CAC tells you how efficiently you’re buying growth. Mastering CAC early keeps your business lean, cash-resilient, and better prepared for healthy scaling. Whether you’re chasing your next 1,000 customers, expanding to new markets, or gearing up for fundraising, tracking and optimising CAC ensures you grow bigger and stronger.