How A SaaS Company’s Customer Acquisition Cost Can Be Reduced By 50%
How would life be if your CAC figure would be halved?
Customer acquisition cost. A double-edged word. And sword.
Put it in the same category as “money” — most dread the word, few are the ones who are energised when they hear the word because of how good they’re doing it. It might be one of the metrics that came into life when the likes of analytical masters wanted to put a number behind the donut, dinner or gift that was bought in order to tighten a relationship between the client and the company.
However, with time, as SaaS products became more and more common, so did this metric. A very healthy rate is as close as possible to 0 — that’s without discussion.
How is that ever achieved?
By creating an experience for your product. Something that immerses people into what is created for them. As a side-effect of an experience, this product connects two or more people. And we’ve seen how valuable social media platforms have become in valuation terms as proof of this concept I’m forwarding now.
Is building a social media platform the only way to win big?
Most people will tell you yes.
Few people will tell you otherwise — they will say brand is also the way to go. If we’re here, let’s also mention this: when brand and experience don’t go hand in hand, look at today’s Facebook to see what that leads to. That’s outside this topic though.
Brand takes time to build. And resources and patience. When a company’s CAC is not making sense at the end of the day (or the quarter, or the year), there might not be enough time for the company to see the light of the day when their brand is developed.
What’s left then?
Even fewer people will be able to tell you the following: you are able to create a SaaS product with a low CAC figure through a third way. And that is by choosing one specific group of people that are part of your audience and thrilling them.
You’ve known the notion MVP. Much like the MVP, this audience also has to be viable — you can’t sell fridges to an Eskimo, indeed, that’s not a viable option.
By natural tendency, people aim too high — looking to sell to everyone. That is viable. Is it minimum, though? We might be tempted to say “I can’t sell something to an audience of two!” — and that makes sense as, again, it’s not viable.
You will have to use your judgement to call what is and what’s not. Here’s what you’re very likely to find out, if you go on this path:
With time, this audience is bigger than you’d be able to expect.
And how will you find that out? By seeing the very tangible effect of making this decision.
People tell like-minded people what helped them tremendously.
Are you able to help tremendously billions of people at once? No, that would be like trying to be Tesco or Walmart tomorrow. You can’t sell the jam they’re putting out for £0.30.
You are able, however, to please a very small group of people. And once you do that, they will tell others — others that are like them.
What’s the new thing here?
I’m repeating myself here — I’ve said that many times before.
The difference is now that when this effect happens, that’s your one-digit CAC figure. And that figure is 0.
Word of mouth is golden because it means 0 CAC.
How would it be if every single customer you have will tell one person about it right now and these people will eventually convert? It will cut down the customer acquisition cost by 50%.
The bottom line
My feeling tells me that by niching down on a specific audience and fascinating them with how much value you can bring them — that’s paramount. The fewer people, the easier it will be to please them. And that doesn’t mean it will be easy overall.
Once they’re pleased, it will spread like a virus (or it will waterfall, if you prefer nicer phrasing).