SaaS KPI: CAC Payback time
The great benefit of the SaaS and subscription business model is that MRR stream compounds over time when compared with a one-time sale. Customer Payback period is one of the most efficient SaaS KPI. Payback period is the number of months a company requires to payback its cost of customer acquisition.
Payback period is how quickly our business recoups the Customer Acquisition Costs (CAC). We calculate it by dividing the CAC by the MRR per customer. Customer acquisition cost or CAC should be the full cost of acquiring customers, stated on a customer basis.
Most SaaS and subscription business today only track CAC, which is one-time cost of acquiring a customer.
How to calculate Customer Acquistion Cost?
There are different ways to calculate customer acquisition cost (CAC). Usually, we are too optimistic in the costs and we only include social media costs to CAC. To be honest, that’s not the right way. CAC is marketing & sales costs from the previous month divided by the number of new deals committed during the month.
Customer acquisition costs (CAC) includes all customer acquisition costs like
- people like sales & marketing team salaries, commissions and travel expenses
- content like Facebook, Google Adwords, Twitter, videos, blogs and webinars
- tools like Pipedrive, Salesforce and variety of SaaS lead generation tools
Some SaaS companies track only one-time costs of the acquisition of customer, few build the compounding costs of retaining a user into their recurring metrics.
How to calculate MRR?
Calculation monthly recurring revenue (MRR) is very easy if you keep in mind two basic things:
- Revenue is recognized when the service is actually provided. MRR only includes monthly revenue (over an subscription period) and
- MRR only includes subscription revenue, no service fees or one-offs.
Annual recurring revenue (ARR) consists of monthly recurring revenue x 12.
The author is the Founder of BackedByCFO, CFO As A Service from seed to IPO, focus in scalable business model.