How to reduce CAC Payback Period for your SaaS
Episode 49
Hello friends, welcome to Episode 49 of Good Buy. Today’s we’ll discuss:
How to reduce CAC Payback Period for your SaaS: in less than 250 words
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Friends,
CAC payback period is the length of time it takes for your user to pay back their cost of acquisition.
The shorter the payback period, the faster your company grows. 5-7 months is a good CAC payback period.
Imagine your total sales & marketing spend is $5000 for Q1. The revenue from Q1 is $2000, and from Q2 is $3000.
The payback period is the CAC spend from Q1 ($5000) divided by the difference in revenue from Q1 to Q2 ($1000).
Since CAC payback is a metric to see how efficient your customer acquisition systems are, here are a few things you can do to reduce your CAC payback period:
Test out new channels to see if you can cut your CAC
Have clear definitions in place of how you are going to define revenue for the purposes of calculating payback period
Incentivize customers to pay for more of their subscription upfront
Experiment with value / usage based pricing model so users spend more to access more value
Inspire churned users to stay using re-engagement emails, drip emails etc
Segment your costs and customers by (a) High volume, low contract value customers (b) Freemium users with potential to upsell (C) Low volume, enterprise-level customers with high contract values, longer sales cycles, and higher cost of acquisition
Focus on organic acquisition
Use a self-serve model
Consistently increase expansion revenue
Remember, the north star here should be to reduce the time spent to recoup the costs of acquiring one segment of your customer & reducing churn so that the revenue generated post the breakeven point generates positive cash flow for your business that you can then invest into growth.
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