The Ultimate Guide to Calculating CAC for SaaS and B2B Companies

We learn how to calculate CAC for SaaS & B2B businesses (or any company with a sales team), discuss which expenses to include & exclude, and how CAC is different for B2B vs. B2C companies.
► CAC for B2C companies: • Customer Acquisition C...
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In this video, we break down how to calculate customer acquisition cost (CAC) for SaaS businesses or any B2B company that has a direct sales team. We use an example startup to practice the calculation.
B2B and B2C businesses differ in their CAC calculations because the expenses that support their sales funnels are generally different, the major difference being that B2B businesses usually have a direct sales team and you include that team in your CAC.
Just as a heads up, in real life you'll hear many different names for "customer acquisition cost" with synonyms such as CAC, CPA (cost per acquisition), the marginal cost of acquisition, etc - they all mean the same thing.
Also in this video, we cover some of the common mistakes people make when calculating CAC, usually involving including expenses they should be excluding, or counting the wrong customers.
We use a step-by-step example so that you'll have a good understanding of real-life situations and be a SaaS CAC pro!
If you have questions - please leave a comment below and I'll try to help. Cheers!
#saascac #cacb2b #startups #cac

[@eric_andrews]

Questions? Let me know in the comments happy to discuss. 🚀 Also, if you want to learn how to systematically scale your startup without ending up as one of the 90% of startups that fail, have a look at this ⇒ www.ericandrewsstartups.com/financeforstartups

[@myztartupjourney6772]

@Eric Andrews i feel humbled that you made this video especially for me thank you so much!!! In college i hated doing accounts and spreadsheets but now that i am starting my own business i want to know all i can know about spreadsheets and this calculation for "B2B CAC" I couldn't find anywhere so i am really grateful for the information thanks!!!

[@eric_andrews]

Happy that it is valuable Kenneth and its my pleasure to help! I hope that this info helps you with your business and always let me know in the comments if there is something more you are interested in learning. I get most of my video ideas from my viewers!!

[@traceyport2124]

Eric Great Lesson!.... Looking forward to the up coming Course Launch!

[@eric_andrews]

Appreciate it Tracey I'll see you there! I think it is going to be an awesome experience.

[@RankaNikunj]

Thanks Eric Sir. Really Learning new concepts and getting aware of such concept.👍

[@eric_andrews]

My pleasure Nikunj, happy you learned something new!

[@bayarsaikhanbaasanbat9009]

Thank you, Eric. Really helpful

[@eric_andrews]

Glad it was helpful!

[@ThisHandleIsNotTaken_Yet]

Thank you Eric Andrews! I've subscribed to your channel. When adding the new customers, do you include the trial customers (freemium)? or are those added until they subscribe and pay? Thanks!

[@eric_andrews]

Hey - thanks. Ultimately, your goal is just to add in all the costs it takes to get one new customer. For most businesses, a new customer is a purchaser, but for others it can mean a subscriber, etc. Generally for fremium, you will have some customer you acquire for the free trial, and then you need to spend more to convert them into paying. Just make sure you are adding all the marketing costs up for all of those activities, and then dividing by the paying customers. So you would have a cost per "free subscriber", and more importantly an actual CAC at the bottom of the funnel. Hope that helps

[@RiseUpAfrika]

@Eric Andrews Thank you for the video. I really appreciate it! It is very helpful. I got some questions. 1. Do we need to consider customer retention costs when we calculate CAC? 2. What if the business model is commission-based and involves customers/ partners, and there is a cost to acquisition partners? I.e Uber business model 3. Do we need to add the cost of the partner on CAC? Thank you in advance!

[@eric_andrews]

Hi. CAC has nothing to do with customer retention, just first time purchases. If a business model has sales commissions then you should include that in CAC. Marketplaces like uber will have a CAC for drivers and a CAC for riders, two-sided marketplaces have to scale each side independently. For a marketplace you do not combine the CAC, no. Keep them separate and report them separately.

[@RiseUpAfrika]

@@eric_andrews Thank you! for your quick response. It is really helpful. I really appreciate it.

[@AbirBaidya]

great...

[@eric_andrews]

Cheers!

[@zerospower85]

1 word: IMPRESSIVE

[@eric_andrews]

Appreciate it!!

[@stanleymwangi9050]

Hey Erick, why does the email subscription portal reject my email claiming its invalid? Thanks for being my MAIN teacher.

[@eric_andrews]

hey stanley - thanks for the heads up! I just double checked the page and tested it with multiple emails and had no problems....can you try again? appreciate the support and glad you're finding these videos valuable!

[@shashikashav5812]

Hi Mark Thank you for your valuable content. I have doubts in this regard. Should we include the rent of the sales office? Should we include the cost of software purchased for customer relationship management? Should we include the cost of computer which we will use in sales office? Should we include the cost of office supplies? Should we include the electricity bills? Should we include the cost of furniture we are going to use in the sales office? Should we include the cost of consultancy we taking taking to design the add? Thank you in advance!

[@eric_andrews]

Hi - I would include things only where the cost of the item will directly get you in front of or touches new customers. So any marketing software, ads, or employees, yes (including the design consultants). But everything else you mentioned (other than consultants), I would not include.

[@shashikashav5812]

@@eric_andrews thank you a lot. This means we can include the cost of design consultant, not the costs associated with office supplies, computers, furniture, and software?

[@eric_andrews]

@@shashikashav5812 yes that's what I would do

[@shashikashav5812]

@@eric_andrews Thanks, in video, it is in between mentioned that we should not include the costs associated with consultant.

[@eric_andrews]

@@shashikashav5812 there is no exact formula for CAC, each company defines it differently depending on how they view their customer acquisition funnel. If the consultant is doing work that directly touches the customer, I would include them, but if they do work that doesn't really touch the customer directly, I would exclude them. Use your best judgment and just think about which expenses drive more sales, and which don't.

[@artishawalker8112]

So basically you do not include the cost of the marketing strategy in CAC calculations?

[@eric_andrews]

Hi Artisha, yes, that's correct. You don't include any compensation for the marketing team in your CAC. Here's an example to help you understand why. So imagine we have an early stage startup and we haven't launched our product yet, but we are preparing our website, marketing strategies, etc, and we have 3 marketing employees that cost a total of $20,000 a month. And imaging after a few months, we launch a small advertising campaign, spend $1000 on facebook, and sell 4 of our products in a month. In this case, CAC would be $1000 / 4 = $250, but if you included the marketing payroll the CAC would be ($20,000 + $1000) / 4 = $5250. The $250 tells us how efficient our advertising is, but if we included the marketing team the number is basically meaningless, which is why we exclude payroll. Hope that example helps!

[@artishawalker8112]

@@eric_andrews THANK YOU so much for this thoughtful example!! Another term I have heard is fully loaded CAC. Is that what the $5200 in this example would be considered? I appreciate the insight, I have been super interested in truly understanding all of this!

[@eric_andrews]

@@artishawalker8112 Hi Artisha - I'm glad the example was helpful! I appreciate that you're really digging into this, awesome stuff. So yes, sometimes people will include salaries and call that "fully loaded cac". That being said, I would say it is less common (due to my original example), because it can sort of distort the actual cost especially for early stage businesses. Usually companies are targeting an $X CAC and they are tracking all of their advertising against that number. But at the end of the day each business can ultimately decide for itself what CAC metrics it wants to use. Any other questions I'm happy to answer them. Cheers

[@emadabdeen6910]

Hi Eric, really great content and helpful. can i have your email address i want to ask you a view questions with regards a business plan i am building if i can have your help around it. Regards

[@eric_andrews]

Hi emad, thanks. I don't have the bandwidth to accept any more consulting clients currently, however I'd be happy to try to direct you to other videos that might help. Cheers

[@Mark-vo2qh]

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