What Is The Average CAC For B2B SaaS Businesses?
Have you ever heard of the quote “You have to spend money to make money”?
When it comes to business, this statement couldn’t be more true — especially when we’re talking about getting new customers.
That’s why, as a SaaS business, you always need to track your customer acquisition cost (CAC).
In this article, we will talk about several particular matters about CAC: what it is, the average CAC for B2B SaaS businesses, and how to determine if your CAC is worth it.
What is Customer Acquisition Cost?
The customer acquisition cost is the amount of money that a company needs to spend in order to acquire a new customer.
That includes sales and marketing spend, such as:
- Marketing team salaries
- Content marketing costs (freelancers & agencies)
- Advertising costs
- License fees for marketing and sales tools (CRM, SEO tools, marketing SaaS solutions, etc.)
- Sales team salaries and commissions
Always remember to only include costs for acquiring a new customer.
CAC is a very important SaaS marketing metric because it allows you to track how much you’re spending in order to get new customers and how efficient your customer acquisition strategies are.
To calculate your CAC, take your total marketing and sales costs for a certain period of time, and then divide it by the number of new customers acquired during that same time period.
For example, let’s say that your company spends $100,000 on marketing and sales over the course of one month, and you acquire 100 new customers during that same month.
Your CAC would be $1,000 ($100,000 divided by 100 new customers).
Factors That Affect Average CAC
Truth be told, there is no single average CAC that applies to all SaaS businesses across the board.
Even as we focus on the B2B space, this market is still too diverse to pinpoint a single average when it comes to sales and marketing costs.
It can vary depending on a few factors:
Different industries require different marketing and sales strategies, which can lead to widely varying CACs.
The industry you’re in can affect your average CAC in a few different ways:
- The perceived value of your SaaS product: If you’re selling a high-value product or service, you’ll likely need to spend more money on marketing and sales in order to convince potential customers to invest.
- The level of competition: If you find yourself in a highly competitive industry, you might not have any choice but to spend more money on marketing and sales in order to stand out from the crowd.
- The average deal size: Deal sizes vary from industry to industry. If the current market rate for a SaaS product like yours is high, then you can afford to spend more on customer acquisition.
Customer Business Size
The average CAC can also vary depending on the size of the businesses you’re trying to win as customers.
There are three main categories that classify B2B SaaS buyers according to size:
- SMB: Small and medium-sized businesses (SMBs) are usually those that are run by the owners themselves and have less than 100 employees. Their annual revenue is somewhere around the $5 million to $10 million range.
- Middle market: The middle market is composed of larger businesses or small to medium-sized enterprises (SMEs). They often have several hundreds of employees, but no more than 1,000. They usually have an annual revenue of $50 million to $1 billion.
- Large Enterprise: Big enterprises are often those that you can find in the Fortune 500 list. They have more than 1,000 employees and make more than $1 billion every year. They may also have multiple locations and offices, both domestically and internationally.
Generally speaking, it costs more money to acquire larger enterprise customers than it does to acquire smaller businesses or individual B2B SaaS end-users.
For SMBs, you may use low-cost customer acquisition methods like the product-led growth model. In such a strategy, you might not even need a sales team or intensive marketing efforts.
But as your target market gets bigger, so does your CAC.
Larger businesses and enterprise customers usually require a longer sales cycle because they have multiple decision-makers that you need to win over.
They also usually need more personalized attention from a sales team before they decide to make a purchase.
What’s more, enterprises are more likely to have stricter budgetary restrictions. This means that your company will need to put in more effort (and resources) to convince them that your SaaS product is worth the investment.
Marketing Channels Used
The type of marketing and sales channels you use to reach your target market can also affect your average CAC.
Some B2B marketing channels are more expensive than others. What’s more, some may require more manpower (and therefore, lead to higher salaries and commissions) in order to be effective.
Two key distinctions in this area are your organic and paid marketing channels:
Organic marketing channels: These are the channels that you can use to reach your target market without spending any money on the channel itself.
But you may still need to cover some costs, such as producing marketing materials and license fees for marketing software.
Paid marketing channels: As the name suggests, these are the channels that you need to pay for in order to use them. They include paid ads, sponsored posts, and influencer marketing.
Organic marketing channels tend to be more effective than paid channels in the long run, but they also take longer to see results.
Paid marketing channels, on the other hand, can give you a quick boost in terms of reach and visibility, but they’re not always sustainable in the long term.
Average CAC By Industry & Customer Business Size
A report by First Page Sage places the following average CAC for B2B SaaS buyers according to their size and industries:
So, if we were to get a general average CAC for each of these customer business sizes, we would get the following figures:
- SMB: $656
- Middle market: $3,449
- Enterprise: $8,077
Average CAC By Marketing Channel Used
Another report by First Page Sage says that various marketing channels have the following average CAC:
Calculating the general average CAC for each of these marketing channels would give us the following results:
- Organic channels: $942
- Paid channels: $1,902
As you can see, the average CAC for paid marketing channels is more or less double that of organic channels.
This is because, as we mentioned earlier, paid marketing channels tend to be more expensive.
They also have a shorter shelf-life, which means you’ll need to continually invest in them in order to maintain the current level of visibility and reach you’re getting from them.
But here’s the thing: remember that you’re not just using one marketing channel.
In most cases, you’ll be using a combination of different organic and paid channels to reach your target market.
So, you need to take into consideration which channels you’re using and how much you rely on them for acquiring new customers.
How To Tell If Your CAC Is Worth It
Now, calculating your CAC and comparing it to one or more averages can only show you so much.
Remember that different SaaS businesses come in different sizes, maturity, and budgets for customer acquisition.
The real question is: is your CAC worth it? Are you actually spending money to make money?
To answer this, you need to use your CAC to calculate two other key SaaS marketing metrics: your CAC payback period and CLV/CAC ratio.
CAC Payback Period
Your CAC payback period is the amount of time it takes for your company to recoup its investment in customer acquisition.
In other words, it’s how long it takes for your SaaS company to generate enough revenue from one customer to cover the cost of acquiring that customer.
Before you can calculate the CAC payback period, you will also need your average revenue per user (ARPU). Obviously, you can find your ARPU by getting the average recurring revenue you are getting from each of your customers.
You can calculate your CAC payback period by dividing your CAC by your ARPU.
For example, if your CAC is $1,000 and your monthly ARPU is $100, it will take you 10 months to earn back the money you spent on acquiring that customer.
This metric is important because it tells you how long it will take for your company to start making a profit from each new customer. The shorter the payback period, the better.
For SaaS businesses, the general benchmark for CAC payback period would be 12 months or less.
Your CLV/CAC ratio is a measure of how much revenue you can generate for each dollar you spend on customer acquisition.
For this metric, you would also need your customer lifetime value (CLV). This is the average amount of revenue that one customer will generate for your business over the course of their relationship with you.
To calculate your CLV/CAC ratio, simply divide your CLV by your CAC.
For example, if your CLV is $4,000 and your CAC is $1,000, then your CLV/CAC ratio would be 4:1. This means that for every dollar you spend on acquiring a new customer, you can expect to generate $4 in return.
Ideally, you want your CLV/CAC ratio to be around 3:1 to 5:1.
Clearly, if you get a ratio of less than 1:1, it means you’re losing money on each new customer you acquire. But even if you get 2:1, it may not be a big enough margin to ensure sustainable growth for your SaaS business.
An extremely high CLV/CAC ratio isn’t automatically a good thing, either.
Sure, you may be getting a pretty high return on investment (ROI) for your CAC. But it could also mean that you’re missing out on potential growth by not investing more in acquiring new customers.
Still, that’s a good kind of problem. If you do get a CLV/CAC ratio of more than 5:1, take it as a go signal to crank up your CAC.
Summing It All Up
As a SaaS business, getting as many customers as you can is essential to your success. But it’s also important to remember that acquiring new customers isn’t free.
There’s always an expense associated with any sales or marketing campaign.
And that expense is what we call the customer acquisition cost, or CAC.
The average CAC for SaaS businesses can vary depending on various factors such as size, industry, and marketing channels used. But in general, the average CAC for paid marketing channels is double that of organic channels.
Of course, the average CAC means nothing if you don’t know how to put it into perspective. That’s why it’s also important to calculate your company’s CAC payback period and CLV/CAC ratio.
Ideally, you want your CAC payback period to be 12 months or less and your CLV/CAC ratio to be around 3:1 to 5:1.
If you can achieve these numbers, then you can be confident that you’re spending money in the right way to grow your SaaS business.
Looking for more guides to help you take your SaaS business to the next level? Check out our blog here.