Customer Acquisition Cost (CAC) measures how much, on average, it costs to acquire a new customer. When compared to the Annual Contract Value (ACV) of newly acquired customers, it provides another lens into sales efficiency.
CAC = S&M Expenses÷count of new customers
New customers can be compared to S&M expenses from earlier months than when the customers went live with the S&M Offset setting. The default offset is 1 month of monthly aggregation, and 3 months for quarterly aggregations. The offset helps account for the lag between sales and marketing activities and a customer producing revenue.
CAC is one of the most important SaaS metrics as it sets the basis for the economics of the rest of the business: how much it costs to acquire a new customer is directly correlated to the ACV and retention required to run a profitable business. While CAC is easy to calculate, categorizing sales and marketing expenses sometimes isn't. It's important to include all department expenses, including salaries, commissions, and brand marketing. Not including these expenses can give a false sense of efficient sales, leading to higher cash burn and lower overall efficiency.