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CAC Payback Basics: What It Is, How to Calculate It and Why It Matters

by
Sean Fanning
OpenView
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Customer Acquisition Costs (CAC) are expenses to acquire customers. CAC payback is how long it takes to recoup the CAC, but it's a complex metric with no universal framework.

Calculating CAC Payback

This is the single best measure of efficiency of your go-to-market engine. The recommended formula is: - CAC Payback = (Sales & Marketing Expenses in Period) / (Net New MRR Acquired in Period * Gross Margin) - MRR figure should include net new MRR - Measure & make improvements.

Benchmarking CAC Payback Goals

  • Faster is better, but focus on peer benchmarks instead.
  • Look at it in the context of logo retention & net dollar retention.
  • Long term trends are key.

Tips for Reducing CAC Payback

Continually experiment to optimize by: - Leveraging PLG best practices - Nailing product / market fit - Driving funnel efficiencies - Optimizing conversion rates Retention is also powerful: - Take advantage of upsell & cross-sell - Avoid the lifetime value trap - Finally, don't forget about your margins! Bottom Line: Faster Payback = Stronger Company

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