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SaaS growth metrics

What is the formula to calculate ‘cost per acquisition’ for SAAS product with subscription revenue?

What is the formula to calculate ‘cost per acquisition’ for SAAS product with subscription revenue?

By Bhaskar Sarma Leave a Comment

Since you have mentioned one time set up fee I am assuming that you have an enterprise SaaS product.

I am also assuming that you will have a high touch sales model, in that there’s someone who will follow up with the lead during or after the trial period over email/Skype and answer questions related to set up.

Now, on a broad level, CAC= (Sum of all marketing and sales expenses)/ (Number of new customers)

Let’s look at the activities you will typically perform to get customers (in terms of both sales and marketing)

  • Content Marketing
  • SEO
  • Social Media
  • Webcopy and design
  • Conversion Rate Optimization
  • Onboarding
  • Funnel optimization
  • Setup
  • Custom modifications
  • Hosting
  • Affiliate fees
  • Credit card fees
  • Costs of apps and other services.

Tally up all the costs involved with all these activities for a fixed time period, and divide them by the number of new customers you have acquired in that same amount of time.

That will be your customer acquisition cost (that’s the easy way).

If you want to go more granular, track the costs associated with each marketing channel, with every affiliate partner, every sales associate etc.

For instance, you might discover in your website analytics that a well designed infographic which cost $500 sent you 10,327 visits to your home page. 10.3% signed up for a free trial, and out of that, 4% became paying customers.

The second approach involves setting up analytics, measurement and testing, all of which falls under conversion rate optimization but is worth it to get more insights and make corrections.

The thing with CAC, though is that the absolute number is meaningless.

You want to look at two numbers related to CAC (LTV is your life time value)

CAC and LTV

To know more about how to calculate these numbers and ratios I highly recommend these excellent articles by David Skok :

  • SaaS Metrics 2.0
  • SaaS Metrics 2.0 Detailed Definitions
  • Startup Killer: The Cost of Customer Acquisition

Filed Under: Quora Tagged With: CAC, LTV, SaaS growth metrics

Can you ace this SaaS growth metrics quiz?

Can you ace this SaaS growth metrics quiz?

By Bhaskar Sarma Leave a Comment

CAC…LTV…MRR…Negative churn…Burn Rate…COGS…CCA…

If there is one thing many SaaS folks struggle with it’s the metrics.

Unlike S.I units in hard sciences, there are new metrics invented all the time, with varying definitions.

Many of these metrics sound important but they are actually vanity metrics, like likes or shares.

They are good for the ego but they tell you absolutely nothing about the health of your SaaS startup.

To find out how well you know the critical SaaS metrics so that you can measure them and adjust your growth plan take this quiz.

It’s a tough one, unlike those “Which Harry Potter character are you?” quizzes.

But you will get to know whether you are the Yoda, John McClane, Frodo or Nemo of SaaS growth metrics.

It’ll be fun, I promise.

This quiz has a number of unfamiliar metrics. If you want to know more about them, or why a particular option was correct, download the key. It has case studies of how companies like Hubspot measure critical growth metrics, formulas for calculating many metrics, and links to authoritative resources on SaaS

[qzzr quiz=”133426″ width=”100%” height=”auto” redirect=”true” offset=”0″]

Filed Under: SaaS Tagged With: quiz, SaaS growth metrics

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