🎙️ Hey there, SaaSpreneurs!🎙️

Hey SaaS Metrics Enthusiasts! 🚀

Ben Murray here, and I'm thrilled to have you back for another exciting SaaS Metrics School session. Today's adventure stems from a question that landed in my inbox via my blog at thesaascfo.com. We're diving deep into the enigma of "gross margin adjusted CAC payback." 🕵️‍♂️

So, grab your favorite drink, settle into your comfy spot, and let's demystify this SaaS speak together. This isn't just a monologue; it's a shared exploration into the heart of SaaS metrics intricacies. We'll unravel the secrets, challenge preconceptions, and arm you with actionable insights. 🛠️

Get ready to elevate your understanding and reshape your SaaS narrative. The journey begins now! 🚀💡

You can also listen to this episode here.

📓Key Concepts to Learn💡

1. CAC Payback Period:

• The CAC (Customer Acquisition Cost) Payback Period measures the number of months it takes for a SaaS company to recover the upfront cost of acquiring a new customer. ⏳ This period varies based on the company's ACV (Average Contract Value) and go-to-market strategy.

2. Gross Margin Adjusted:

• The Gross Margin Adjusted CAC Payback considers the subscription gross margin, which is the margin the company earns after deducting the direct costs (COGS) associated with providing the software. 💰 This adjusted metric provides a more accurate reflection of the profitability of customer acquisition.

3. Inputs for CAC Payback:

To calculate CAC Payback, three inputs are needed:

• Average Revenue per Account (ARPA): The average revenue generated from new customers. 📊

• Subscription Gross Margin: The profit margin from the subscription revenue stream. 📈

• CAC: The upfront cost to acquire a new customer. 💸

4. Beware of Standard Benchmarks:

• It is important to note that generic benchmarks for CAC Payback periods found on social media may not apply universally. 🚨 The ideal CAC Payback period depends on the specific go-to-market motion and ACV of each SaaS company.

5. Gross Margin Adjusted Version:

• The Gross Margin Adjusted CAC Payback is widely accepted as the preferred method for calculating CAC Payback in the SaaS industry. 🌐 This adjusted metric provides a more comprehensive understanding of how long it takes to recoup customer acquisition costs while considering profitability. 📈

Ready to supercharge your SAAS business? 🚀 Download Ben Murray's free SAAS forecast model on thesaascfo.com and revolutionize your revenue forecasting. Join the SaaS community with almost 5,000 members. Don't miss out — maximize your ARPA knowledge today!

If you found this episode helpful, make sure to tune in to future episodes of SaaS Metric School to broaden your knowledge on essential SaaS metrics and finance topics.

Got any burning questions or specific metrics you'd like us to cover?

Drop us a line, and we'll do our best to address them in upcoming episodes.

Until next time, keep hustling and measuring those metrics!

Best regards,

Ben Murray
Host of SaaS Metric School

📝 Episode Recap 🎧

In this episode of SaaS Metrics School, host Ben Murray answers a listener's question about the concept of gross margin adjusted CAC Payback. Ben explains that CAC Payback is a favorite metric of his, which measures the number of months it takes to recoup the upfront customer acquisition cost. However, he emphasizes that the benchmark for CAC Payback varies based on the average contract value (ACV) and the go-to-market strategy of each company.

To calculate the CAC Payback period, Ben outlines the three inputs required. Firstly, the host discusses the importance of knowing the average revenue per account (ARPA) or monthly recurring revenue (MRR) of new customers, which is based on recent wins. Secondly, the subscription gross margin is considered, highlighting the need to focus on the basic CAC Payback period for this episode.

Next, Ben explains the concept of gross margin adjustment. By multiplying the cohort ARPA with the gross margin for subscriptions, practitioners can determine the gross margin they are receiving from each customer. Finally, the CAC (customer acquisition cost) is divided by the gross margin to calculate the number of months required for payback.

Throughout the episode, Ben emphasizes the importance of using the gross margin adjusted version of the CAC Payback period, cautioning against relying on standard benchmarks found on social media posts. He also invites listeners to download his CAC payback period template, which offers three different calculation methods.

To wrap up the episode, Ben urges listeners to leave a review and rate the podcast if they find value in the content.

Overall, this episode provides valuable insights into the concept of gross margin adjusted CAC Payback and highlights the need for personalized benchmarks based on each company's unique characteristics in the SaaS industry.