What Is The B2B SaaS CAC Benchmark For 2023?
Customer acquisition cost (CAC) is one of the most important SaaS metrics you need to track. After all, winning new customers for your business-to-business or B2B SaaS company is one of the most important factors for its growth.
As the saying goes, “You need to spend money to make money.”
Question is, are you spending the right amount? More importantly, how well are you using your customer acquisition costs for the growth of your SaaS business?
In this article, we will talk about the B2B SaaS CAC benchmarks you need to look out for and how to best use your CAC metric.
But first, let’s get on the same page on what the CAC is.
What Is The Customer Acquisition Cost?
If you’re not quite sure how to calculate your CAC, it is simply the average cost it takes to acquire a single new customer over a certain period of time. That includes your total sales and marketing expenses for that period.
Here are some things that may fall into these categories:
As you may guess, your marketing expense would include any costs associated with marketing your SaaS product.
These may include the following:
- Advertising spend: How much money do you spend on platforms such as Google Ads, Facebook Ads, and other paid ads?
- Content marketing: This would include any costs associated with creating, executing, and promoting content to drive awareness of your SaaS product.
- Marketing team payroll: This includes any salaries, bonuses, and other costs associated with compensating your marketing team. If you’re outsourcing some work to marketing freelancers, you should also consider their fees here.
- Marketing software and tools: How much are you spending to pay for marketing software, such as email marketing platforms, social media management software, analytics tools, and other solutions?
Your sales expense would include any costs associated with selling your SaaS product through SaaS sales efforts. It may include the following expenses:
- Sales team payroll: This includes any salaries, bonuses, commissions, and other costs associated with compensating your sales team.
- Sales-related software and tools: How much are you spending to pay for sales software, such as customer relationship management (CRM) systems, live chat, VoIP (if you do sales calls), and other tools?
- Events and trade shows: If trade shows and other in-person events are a part of your customer acquisition strategy, you need to factor in any costs associated with attending and exhibiting at them.
How To Calculate Your CAC
Now, to calculate your CAC, simply add your sales and marketing spend over a particular period then divide the sum by the total number of new customers you gained during that period.
For example, let’s say you have an overall marketing budget of $30,000 and a sales budget of $20,000 over a three-month period. During those three months, you’ve acquired 50 new customers.
Using the formula above, your CAC calculation would look something like this:
($20,000 + $30,000) / 50 customers = $1,000 per customer
Factors That Can Affect CAC Benchmarks
To tell you the truth, there is no one CAC benchmark that applies to all SaaS businesses across the board. A B2B SaaS company’s overall budget for marketing and sales may vary due to a few factors.
Let’s talk about those factors:
Sales & Marketing Channels
The sales and marketing channels you’re using to reach out to your target customers can have a big impact on your CAC.
For example, let’s say you’re investing heavily in digital advertising. You can expect to have a higher CAC compared to another company that’s mainly relying on organic channels like content marketing and search engine optimization (SEO).
Still, a healthy customer acquisition strategy is usually one that has a good mix of both organic and paid channels.
Your Target Audience
Who you’re trying to reach as customers can also influence how much CAC it would take to have them on board as customers.
Let’s say you’re targeting small to medium-sized businesses (SMBs) with limited budgets. You may spend a relatively lower budget since you might mostly use organic channels (and minimal paid ads) to attract them and close them as customers.
On the other hand, if you’re targeting enterprise-level organizations with bigger budgets, then you should expect to spend more since your customer acquisition strategy would be more sales-driven.
Your Industry & Competition
Your CAC may also depend on the industry you’re in and how competitive it is.
For instance, if you’re in a more competitive industry, then you may need to invest a significant amount of money just to get your target customers’ attention.
B2B SaaS CAC Benchmark Per Customer Acquisition Channel
Now, let’s go a little deeper and look at some actual benchmarks for your B2B SaaS CAC.
Here are a few helpful charts that breaks down the average CAC by channel, as reported by FirstPageSage:
CAC Benchmarks For Organic Marketing Channels
CAC Benchmarks For Inorganic (Paid) Channels
B2B SaaS CAC Benchmark Per Industry & Target Market
As we mentioned earlier, your CAC may also depend on the industry you’re in and your target market.
Here are a few more B2B SaaS CAC benchmarks broken down by industry and target market, according to another report by FirstPageSage:
How To Gain More Insights From Your CAC
The thing about the CAC metric, when viewed on its own, is that it doesn’t really tell you much.
Sure, you’ll have a better understanding of how much money you’re spending to acquire a new customer. But you won’t get insights that can give you actionable steps to optimize your customer acquisition strategy.
This is why it’s important to also look at other SaaS financial metrics along with the CAC to provide more insights and help you make better decisions.
Let’s take a closer look at these other metrics:
CAC Payback Period
The CAC Payback Period can help you analyze how much time it would take to make back the money spent on acquiring a customer.
To calculate your CAC Payback Period, simply divide your CAC by your average revenue per user (ARPU).
BTW, your ARPU is the average recurring revenue you’re making for each customer you have. You can compute it by dividing your total recurring revenue by the total number of customers you have.
You can compute either an annual ARPU (annual recurring revenue or ARR / number of customers) or a monthly ARPU (monthly recurring revenue or MRR / number of customers).
Now that that’s taken care of, let’s have an example of a CAC Payback Period calculation. Let’s say your CAC is $1,000 and your monthly ARPU is $100. Then your CAC payback period would be 10 months.
In the SaaS industry, a CAC Payback Period of 12 months or less is generally considered good.
Your Sales Efficiency metric can help you measure whether or not your CAC during a particular period has resulted in significant immediate revenue.
Now, there are two types of sales efficiency metrics you can track: your Gross Sales Efficiency and Net Sales Efficiency.
Gross Sales Efficiency
Between the two, the Gross Sales Efficiency is a more straightforward metric.
It uses your Gross New ARR in the equation which is the difference between your current ARR and the previous period’s ARR.
For example, let’s say from last quarter’s ARR of $500,000, it grew to $570,000. Your Gross New ARR would be $70,000.
Now, to calculate your Gross Sales Efficiency, divide your Gross New ARR by your total sales and marketing expense.
Let’s take it from the examples we currently have. Let’s say you have a Gross New ARR of $70,000 and a total sales and marketing spend of $50,000.
Your Gross Sales Efficiency Calculation would look something like this:
$70,000 / $50,000 = 1.4
Net Sales Efficiency
Where there is a “gross” there’s always a “net”. Taxpayers know this all too well.
Anyway, the Net Sales Efficiency metric is slightly more complex to compute. It uses the Net New ARR, which considers the recurring revenue you lose due to customer churn and downgrades.
The Net New ARR subtracts your churn ARR and contraction ARR from your Gross New ARR.
Using our previous example, let’s say you lose a total of $10,000 as a result of customer churn and contraction. Your Net New ARR would be $60,000.
At this point, the formula for your Net Sales Efficiency might already be obvious to you. You can find it by dividing your Net New ARR by your total sales and marketing spend.
Using our example, let’s say you have a Net New ARR of $60,000 and total sales and marketing expenses worth $50,000. Your Net Sales Efficiency calculation would look something like this:
$60,000 / $50,000 = 1.2
Just a note when computing your Sales efficiency (whether gross or net): be consistent with your time periods.
If you’re using your sales and marketing spend over a three-month period, make sure you’re also tracking the difference in your ARR over the past three months.
Limitation Of The Sales Efficiency Metrics
One limitation of the sales efficiency metrics is that they only factor in the immediate revenue you get from your new customers.
Remember that customers can stay with you for a long period of time. If you have a good customer retention strategy, you can generate recurring revenues from them for years.
So while it’s important to track your Sales Efficiency, it should not be the only metric you use to measure the success of your CAC.
You should also use one that can look at the big picture and consider the total revenue you can get from each customer.
And that brings us to our last CAC-related SaaS metric.
Your CLV/CAC Ratio or LTVCAC Ratio is a measure of how much total revenue you can generate from each dollar in your CAC.
Obviously, to calculate this metric, you would first need to find your Customer Lifetime Value (CLV), sometimes also called lifetime value (LTV).
In a nutshell, your CLV is the total revenue you make from each customer on average over the entire time they are a customer. To calculate it, multiply your ARPU by your average customer lifetime (or the average time that a customer remains subscribed to your SaaS product).
Then, once you have both metrics (CAC and CLV), you can calculate your CLV/CAC ratio simply by dividing the CLV by the CAC.
Again, let’s have an example: Let’s say your CAC is $1,000 and your CLV is $3,000. Your CLV/CAC ratio would then be 3:1.
This would mean that for every dollar you spend on customer acquisition, you’re generating $3 in revenue.
For SaaS businesses, the benchmark for the CLV/CAC Ratio is around 3:1 to 5:1.
Final Thoughts: How To Make The Most Out Of Your CAC
Being on top of your B2B SaaS company’s expenses, especially your customer acquisition cost, is essential if you want to make sure that your business is growing.
After all, acquiring customers is always going to be one of the most expensive and important endeavors you’ll ever undertake.
However, the CAC metric by itself is not enough to tell you whether or not your customer acquisition strategy is working. You need to compare it to SaaS benchmarks in the industry and other metrics that may provide more insights into it.
And at the end of the day, the ultimate measure of how well you’ve used your CAC is how much total revenue you’ve generated as a result.
That’s why, for a SaaS business, customer retention is more important than customer acquisition.
Reducing your customer churn rate and making your customers stay for many years is the key to making the most ROI from your customer acquisition costs.
So while customer acquisition is essential for building and growing your customer base, customer retention and loyalty will be your ticket to sustainable growth.
Looking for more guides to help take your SaaS business to the next level? Check out our blog site here.