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Mrr software namechanger1/2/2024 ![]() ![]() The more churn you have, the longer it will take your SaaS business to reach a revenue level where you are covering both acquisition costs and service costs (ACS). Even though you might have a nice customer acquisition rate, you are getting deeper into debt with each churned customer. Now, your next customer or customers must pay off their own acquisition costs and the acquisition costs of customers who have churned (assuming you didn’t pay off CAC yet). customer), you still have to make payments on your debt. You have a stream of income (MRR – ACS) paying off a portion of the total CAC (i.e. Why is churn important? Think of the payback period like debt repayments as mentioned above. The payback period does not factor in churn or the time value of money. Since I am using MRR, the formula will calculate the number of months required to pay back the upfront customer acquisition costs. To calculate the payback period, you need:ĬAC, MRR, and ACS (or MRR * GM % of Recurring Revenue) Step 2 – Calculate the CAC Payback Period If you have not calculated CAC previously, I explain how to calculate CAC here. Step 1 – Calculate the CAC (Customer Acquisition Cost) My Excel models are also available for download for these metrics. If you are not familiar with the formulae for CAC and ACS, click on the links above to review the posts detailing how to calculate these metrics. There are only three inputs required for this formula which makes it an easy calculation and easily understood. This can also be MRR * Recurring Gross Margin % rather than ACS. I also would like to note an alternative denominator input. ![]() Simply put, CAC Payback Period equals CAC divided by the gross margin dollars generated by that customer. In my view, the CAC Payback Period is the number of months required to pay back the upfront customer acquisition costs after accounting for the variable expenses to service that customer. Fewer results but the CAC Payback Period is getting more attention these days and much deserved.ĭownload the CAC Payback Period Excel template below. Google “CAC Payback Period” and you return “only” 15,800 results. Google “cac ltv” and you return about 237,000 results. In this case, the interest is the opportunity cost of monies tied up in CAC that could have been spent elsewhere (for example, new product). What if I were to say that Customer Acquisition Costs (CAC) were just another form of corporate debt with a twist? You have a balance or principal amount, the amount spent to acquire a new customer, and an interest component. In this post, I detail how I calculate the CAC Payback Period and how to understand its impact on your SaaS business. Typically, there is a principal balance that you repay over time along with some type of interest component. It could be a bond or a traditional long-term bank loan. Debt takes on many forms within a company.
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