When Your Customer Acquisition Cost Doesn’t add up!
If you’re like most SaaS businesses, your Customer Acquisition Cost (CAC) is one of the key metrics for your Sales and Marketing teams.
It’s usually calculated by adding the costs for advertising, overhead, and the team, and then breaking it down per customer (and channel).
But your CAC is not telling the truth!
The majority of churn (some sources say over 70%) happens due to incomplete or unsuccessful onboarding.
Yet, most CAC’s only calculate the costs of getting the customer into the hands of Customer Success – not beyond.
Onboarding is then considered an operational cost – much like running your servers, or paying your water bills. But a customer that hasn’t been successfully onboarded hasn’t really been acquired – because they will most likely churn.
So let’s fix our CAC – and include the costs of onboarding!
While this will sound completely logical to you, including your onboarding in the CAC will have to more benefits that will strengthen your position in the company enormously:
Costs open your CEO’s wallet
Onboarding isn’t just a cost that you can’t do anything about. No CS ever complained about too much budget. So acknowledging that there is a cost helps you build a business case around it. Need tools? More time? Support from colleagues? Is there is a clear cost point involved, it’s easier to ask for these things.
Force your Sales team to sell to good-fit customers
Bad fit customers need more onboarding time. Good-fit customers get through your onboarding much faster. Including your Onboarding in the CAC means that your Sales and Marketing team will immediately feel when they sell to bad-fit customers. Let the numbers talk!
Thanks to Peter Ord for introducing this idea in his Forbes article!