- Hi there.
Dan Martell here, serial entrepreneur, investor,
and creator of SaaS Academy.
In this video, I'm gonna teach you
how to calculate your CAC.
What I really mean to say is
how to calculate your cost to acquire a customer
in an easy, three-step equation,
and be sure to stay to the end
where I'm gonna share with you an exclusive resource,
my Precision Scorecard, that's gonna give you clarity,
accountability, and the list of metrics you need
to be managing to move your business forward.
So let's get into it.
(upbeat percussive music)
So over the years,
I've built five software companies myself,
and the third one was a venture-backed company.
I still remember when we were trying
to pitch investors, and we're sitting down meeting
with them, and they ask questions like how's your churn,
how's your burn rate.
And then they go, "What's your CAC,
"your cost to acquire customer?"
And we would give them a number,
and then they would go "Wow, that's incredible.
"Are you sure?"
And we're like, "Yeah, we ran the numbers.
"We looked at our ads.
"That's what it costs us to acquire a customer."
And they said, "But is that your fully loaded CAC?
And my brain just went (simulates explosion).
Never heard that term before.
What does fully loaded CAC mean,
and what am I missing?
Because he was impressed with my number.
Something tells me that the real number may not be
as impressive and is probably gonna negate the meeting.
In this episode, I'm gonna share with you
how to think about CAC, the principles behind it
and the equations to make sure
you're measuring things right
so you don't look like a weirdo
in front of a potential investor.
Number one, CPA does not equal CAC.
So CPA stands for cost per acquisition,
essentially what does it cost you to acquire a customer,
but it's not your cost to acquire a customer.
It's cost per acquisition,
which is typically measured through your ad spend.
So CPA is if you're running ads,
let's say you spend a $1,000 a month
on acquiring customers through Facebook
and you get 100 customers, then essentially you spent $10
for a CPA to acquire that trial, signup, demo,
whatever your, well, not demo,
but probably paying customer, whatever you use
as a sales motion, that is your CPA.
And it only includes, for the most part, your ad spend.
Number two, the CAC equation.
So here is the math for you to measure the CAC
so you get it right the first time somebody asks you.
It is your marketing expenses plus your sales expense
divided by the number of customers for that period.
So your CAC can fluctuate on a weekly basis versus monthly
versus quarterly versus yearly,
and what you do is for that period,
just measure up all of those expenses divided by the number
of new customers you acquired, sometimes per segment
if you're selling different plans,
and that is how you measure the cost to acquire customers
in three easy steps.
But we've got more 'cause some of you are not thinking
of the broader picture,
and you don't wanna look like you don't have the answer
if a VC asks you to truly measure the fully loaded CAC.
Number three, expenses.
What that mean when somebody says your marketing expenses
and your sales expense?
A lotta folks don't realise, but it means everything.
It means salaries.
It means overhead, your lease agreements.
So companies and investors will actually ask you
to look at the square footage on a lease.
If it's 20% of your square footage of an office is dedicated
to sales and marketing, they'll want that put into it,
also the software tools, you know, all the SaaS tools,
the CRM tools, the attribution tools,
the marketing platforms, your cost for ads, et cetera,
all of the tools associated to generating that revenue,
and some people, I'm not sure if I'm there yet,
but some people even go as far as a portion
of your customer success team
that's responsible for revenue growth,
so any expansion revenue or retention
where you're compensating,
I would personally say, okay, well,
if you're asking me to put my customer success team,
I'm only gonna put maybe the bonuses that I'm paying out
based on retention goals or expansion revenue.
I'm not gonna put their salaries
'cause I kinda put that in the kinda the operations
of the business.
But that is when somebody I asks you
what's your fully loaded CAC,
it means lease agreements, like square footage, tools,
salaries and any other kind of expenses associated
to revenue generation.
So three principles to understand
when it comes to calculating your cost
to acquire a customer.
Number one, your cost per acquisition is not your CAC.
CAC is the simple equation of marketing sales expense
divided by number of new customers,
and be sure, number three, that when you're looking
at expenses, you look at tools, overhead salaries.
That is your fully loaded CAC.
So as I mentioned at the beginning of this episode,
I wanna share with you an exclusive resource
called the Precision Scorecard.
It's a process and a framework that I created
for my coaching clients to help them get visibility,
accountability and an understanding of the core metrics
laid out in a funnel to help you know
if your business is moving forward.
So you can click the link below to download your copy
of that yourself.
It has all of the key metrics.
It's got the reporting structure that you can swipe and copy
for your own business
and make sure that you start holding your team accountable
to moving those numbers forward.
Just click the link, download that below.
And if you like this video,
be sure to smash the like button,
leave a comment and let me know
what was your biggest takeaway from this episode.
And as per usual, I want to challenge you
to live a bigger life and a bigger business,
and I'll see you next Monday.