Why SaaS Marketers Need to Understand CAC Payback Period
CAC Payback Period is an important metric for both company leaders and investors that helps them understand the efficiency of growth and how much cash is going to be needed to keep the business growing at that rate. However, most marketers in SaaS companies don’t understand CAC Payback Period as a metric, what it is at their company and most importantly, how they influence it.
There are many ways that Marketing influences CAC payback and I’ve called out a few of the biggest areas where SaaS marketers can have a positive or negative impact on payback.
Since the salaries of the Marketing team are included in the CAC calculation, it is important for SaaS marketers to understand that adding more people to the team will ultimately impact CAC and the payback period.
When more reps are added to the Sales team, it is much easier to break even on CAC because with the added expense also comes additional closed customers (ideally more) and an improved average revenue per account (ARPA). Since most Marketing roles are not directly tied to closing more deals, it is critical to think through why the additional hire is necessary and how they ultimately impact the company’s ability to close more deals.
It is no secret that the world of marketing technology is full of options for every possible tool or feature you could possibly dream up. Because of this, many marketers have grown accustomed to solving their problems with more new & shiny tools that begin to slowly add to your expenses. This, in turn, begins to negatively impact your CAC.
Take these few steps to prevent the cost of your tech stack from getting out of control.
Evaluate the tools you are using on a regular basis to ensure you aren’t paying for things that you or your team aren’t using anymore.
Dig into what problems you are trying to solve with the new tools and then audit your existing tools to determine if you are already paying for most/all of this functionality elsewhere.
Ask yourself if the tool is actually solving a problem (i.e. we need to put online chat on our site and we don’t currently have a tool that can support that) or is it solving the symptom of a larger problem (i.e. we need sign on with this new retargeting vendor because our conversion rate is low this month). The former is strategic and the latter is reactive. Believe it or not, A LOT of software gets purchased from a mindset similar to the latter example.
Ultimately, tools and technology can really accelerate the impact that the Marketing team has on your business but if not controlled, it can quickly become an unnecessarily large expense.
The percentage of overall Marketing expenses that go to advertising varies greatly from team to team so this may be more applicable to some teams than others.
Now, I don’t think that the efficiency of your ad spend should be measured by a metric as high-level as CAC because it hides too many issues and inefficiencies. However, if CAC is total Marketing & Sales expenses divided by # of acquired customers, then you at least need to be thinking on some level about how/where you are spending your ad dollars that are included in the numerator and whether or not that money is driving more new customers in the denominator or if your ad spend is only increasing the expenses and therefore, increasing CAC.
Moving away from the expenses side of the equation, marketers can also have a big impact on how many deals the Sales team closes and the average deal size. Through account-based marketing, case studies, events, email nurturing and lead scoring, marketers can significantly influence the amount of new business being closed to lower CAC and the payback period.
When done well, this can lead to a very powerful flywheel effect because by lowering the CAC and payback, it allows Marketing to increase expenses in the areas above to generate even more opportunities, knowing that it will lead to more revenue and not just an increased payback.
Marketing can have a big impact on the onboarding of users and product adoption. When your customers are realizing value in the product, can easily learn about new features and can solve their own problems through a quality help center or self-guided learning, there is less dependence on customer support and customer success which can lower the costs that impact your Gross Margin %.
Similar to before, when marketers can help drive strategy and initiatives in areas that can create a better experience for customers without the need to continue hiring more full-time support, they can shorter the payback period and increase their ability to drive more opportunity at the top of the funnel.
Time to Apply This to Your Marketing
Learning how your work as a marketer impacts CAC and the payback period is a great way to begin increasing your value and alignment to the overall success of the company.
You don’t have to have a CFO-level knowledge of startup finance, the important part is that you are gaining this broader context and can consider how your efforts are laddering up to the bigger picture.