SaaS CAC – Customer Acquisition Cost Strategy Tips

As a new SaaS company, or a company branching from traditional software into this burgeoning new service industry, you have a lot of plans and strategies to work out. You undoubtedly have a really solid set of subscription plans worked out for the time when things are operating at initial capacity. You certainly have a solid design and some great usability and user experience solutions worked out from upwards of a year or two of tireless design, testing and retesting. You’re ready to go … as soon as you’ve worked out a suitable customer acquisition strategy, that is.

That’s right, you have one more strategy to plan out, and that’s customer acquisition strategy. And, before you go off just thinking “Oh that’s marketing, we’re covered”, no. No it’s not marketing. Ok, that’s part of it, but it’s more of an expense metric than a direct aspect of your strategy in this context.

Now, there’s no need to get your socks in a bunch, because this isn’t rocket science, but you really do need to have this worked out. Before I can give you some tips about this strategy, though, I need to teach you a metric and how to calculate it.

Your CAC, or customer acquisition cost, isn’t going to be a metric you have the first time you market to customers, but this will be invaluable once you’ve gone through one fiscal period. Along with that, knowing how this calculation works gives you some insight into your strategy going in, to try to get a CAC that’s not ridiculous. All you need to do to calculate it, once you have the metrics to do so, is to add all of your sales and marketing expenses (and I mean every single expense from personnel and production, to the coffee your sales people drink), and then divide this by the number of new customers obtained in that period. Convert this from an ugly decimal to a percentage-based number (which in turn is monetary), and you have your CAC.

Now, what have we learned from this, since as a startup, we can’t calculate it yet?

We know first, that the expenses for our marketing strategies can’t dwarf the number of customers acquired, or our acquisition costs are too high, meaning our strategy is inefficient. We also know that as a startup, or at least a newcomer to SaaS, we can’t expect huge numbers of customers out of the gate.

Knowing these things, the first thing we need to do is find channels of marketing that work well and engage users, but don’t cost a fortune to implement. This means that buzz marketing, guerilla campaigns and traditional media advertising are not wise. What are we to do, then?

We use as much free marketing resources as we possibly can, by turning to social network marketing, blogging, SEO and other low-impact, high yield approaches that only incur expenses insofar as someone to write the materials.

We also know that sales costs can’t be too expensive, so we must choose CRM software that is affordable, if we don’t already have one from previous business ventures. We must also have a minimum set of personnel dedicated to this sales and marketing, from the beginning as personnel are very expensive.

Now, we’ve trimmed the fat as much as we can for the costs on the top half of the problem, but how can we bolster the number of new customers, since that’ll clearly offset the CAC further, plus more customers is just plain … the thing we want?

Why, we offer demos, one month free trials (with ads and affiliate marketing peppered in for tertiary revenue to help CAC), bonus incentives and other hooking approaches we’ve known to work since the dawn of free enterprise, that’s how.

So, as a startup, or a newcomer to SaaS, you need to go through this logic, and, tuning this to your specific needs, formulate a solid customer acquisition strategy, because that CAC will eat you alive down the road if it gets out of hand. In fact, if it’s a monster at the start, you may not even get far enough for it to sneak up on you.

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Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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