What does it cost to win a new customer, and how quickly do you earn it back?
The full cost of winning one new customer, and the number of months of margin it takes to recover it. Growth only creates value when customers repay the cost of winning them, and do so quickly.
Get a finance reviewCAC = Total sales and marketing cost ÷ New customers won. CAC payback (months) = CAC ÷ (Average monthly revenue per customer × Gross margin %)
CAC payback under 12 months is generally healthy for SaaS and managed services. For e-commerce, recovering CAC on the first or second order is a common target.
Total sales and marketing spend in a period, including salaries, commissions, advertising, agencies and tools, divided by the number of new customers won in that period. CAC payback is the number of months of gross margin from a new customer needed to recover that cost.
Revenue growth can hide an expensive engine. If customers cost more to win than they generate in margin, faster growth means faster losses. CAC and payback show whether marketing spend is working, which channels are worth scaling, and how much cash the business needs to fund growth, since acquisition costs are paid up front while the margin arrives over months or years.
Include all sales and marketing costs, not just advertising, or the figure will be flattered. Calculate it by channel where possible, as averages hide channels that lose money. Use gross margin, not revenue, for payback. Allow for the time lag between spending and winning customers, particularly where sales cycles are long.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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