The CAC: LTV Tango of SaaS products

CAC is customer acquisition cost. LTV is customer lifetime value. Together, they govern the unit economics of SaaS products.

The optimum CAC: LTV ratio is 1:3. For eg: if you’re running ads & you’re spending $100 to acquire 1 customer who then ends up generating $300 in revenue for your business - that’s a healthy return.

To maintain this ratio, you need 3 elements working together.

#1: Marketing - Your top-of-the-funnel efforts (SEO, ads) need a clear KPI. A good KPI is optimize for is MQL (marketing qualified leads). These qualified leads enter the 2nd funnel.

#2: Sales - The MQL’s are converted to paying customers by sales. For maximum impact, it’s a pre-requisite that your buyer personas (ICPs) are consistent for both sales & marketing.

#3: Customer Success - Your CS team measures engagement & sets trigger events depending on buyer personas. Eg: Alan’s usage of Reflio, an email marketing tool has dropped from his baseline use of 5x per week to 2x per week. Suzie sets up a re-engagement campaign for Alan.

To maximize impact across these channels:

Spend time on zeroing in on your ICP + the marketing channel corresponding to the ICP. Keep sales, marketing and CS teams aligned.

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