🎙️ Hey there, SaaSpreneurs!🎙️

Ben Murray here, welcoming you to another edition of SaaS Metrics School! In this issue, we’re diving into the intriguing world of the dollar-based CAC payback period, also known as the net ARR payback period.

This metric is a valuable twist on the traditional CAC payback period, offering a streamlined approach to measure customer acquisition efficiency without the usual complexity and biases.

You can also listen to this episode here.

📓Key Concepts to Learn💡

1. Understanding Traditional CAC Payback Period:

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     What it is:

     The CAC (Customer Acquisition Cost) Payback Period measures the number of months needed to recoup the upfront costs of acquiring a new customer.

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     Focus:

     It zeroes in on new customer acquisition, making it a fundamental metric for growing SaaS businesses.

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     Calculation:

     Simply divide your CAC by ( cohort MRR x recurring gross margin %). If you are using ARR, make sure you multiply by 12.

2. Introduction to Dollar-Based CAC Payback Period:

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     What it is:

     An advanced metric extending the traditional CAC payback period by focusing on the payback of ALL new and expanded ARR (Annual Recurring Revenue), thus eliminating any logo bias.

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     Why it matters:

     This metric accounts for every dollar brought into the business, whether from new clients or existing ones, via expansions, making it a more encompassing measure of total GTM CAC

3. The Flaws of Logo Bias and Unit Measurement:

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     What is logo bias?:

     Sometimes, aggregating customer acquisitions under single-brand names (like Starbucks) can skew metrics, making them either overly optimistic or too conservative.

     Eliminate uncertainty:

     Dollar-Based CAC Payback Period clears this confusion by focusing solely on net new ARR, regardless of logos won.

4. Comprehensive Metric Calculation:

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     Formula breakdown:

     The calculation involves taking all sales and marketing expenses (numerator) and dividing them by net new ARR times X your recurring gross margin % x 12.

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     Simplified approach:

     This method simplifies allocating sales and marketing expenses between new and existing customers, offering a clearer financial picture.

5. When and Why to Implement Dollar-Based CAC Payback Period:

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     Strategic use:

     Utilize this metric when the traditional CAC payback period seems inconsistent or unusually high.

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     Performance tracking:

     This gives a trended understanding of your payback period over time, aiding in strategic planning and operational adjustments.

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If you found this episode helpful, make sure to tune in to future episodes of SaaS Metric School to broaden your knowledge of 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

P.S. Don't forget to subscribe to our podcast and share it with your SaaS business buddies. Together, let's conquer the world of SaaS metrics!

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