The Tech Adoption Index team is on a journey to deliver insights that matter to the community we are building in the small-business software world. One item on our checklist is an examination of key operational metrics in the SMB SaaS world.
There are many good sources of SaaS metrics out there. SaaStr — the B2B SaaS tracking company — is a great source for all things SaaS. Most of its content focuses on how to sell SaaS to global and large scale enterprises. Another great source is the work the team at KeyBancPacificCrest does each year ahead of its two major technology events in Vail and San Francisco. They build tables and charts of many key SaaS metrics that are very helpful.
We’re not looking to reproduce what either of these well-established sources already provide. Instead, we’re looking to help teams that sell SMB SaaS understand the same key metrics that SaaStr and KeyBancPacificCrest track, but at the SMB level. Enterprise SaaS metrics have limited value in the SMB space.
The Metrics that Matter
Customer acquisition cost (CAC) is a term that gets thrown around in VC boardrooms, at management team off-sites and among those in revenue, sales management and finance leadership roles.
So what is CAC, how is it calculated and why is it important? A good starting point is this piece in Andrew Chen’s newsletter, offering a very useful discussion of CAC and some of the nuances of the calculation. In essence, CAC is the fully loaded cost to acquire a new customer. This calculation should include all sales and marketing expenses including salaries, marketing and advertising expenditures and any SaaS tools used in sales and marketing activities.
So we’ve been asking around the SMB SaaS community and have discovered some preliminary guideposts for CAC metrics in this space.
Our discussions led us to a typical SMB SaaS CAC being in the range of $1,200 to $1,600. This is for companies selling a SaaS solution in the range of $100 – $200 per month, which is a fairly common range for SMB software products. We have heard from others in the SMB space who had CAC metrics in the $400 – $600 range. These CACs are considerably lower and are often a function of selling into a narrowly defined market e.g. HVAC service providers, having a business model that is volume or transaction centric and may also be a function of relying on offshore SDR (sales development reps) teams.
These guideposts need to be considered in the context of two other key metrics — average customer value (ACV) and churn. The simple math is that the higher CAC is, the higher ACV needs to be and the lower churn needs to be to drive a profitable business model.
How does your CAC compare to these guideposts? We’d love to hear from you privately. We’ll do some discovery around ACV, LTV (lifetime value) and churn and share our findings in a future post.
Charles Laughlin and I also discussed this topic on our most recent “Above the Cloud” podcast. Listen here: