This document discusses how to calculate customer acquisition cost (CAC) and lifetime value (LTV) to optimize marketing spend for a Saaas business. It defines CAC as the total costs to acquire a new customer divided by the number of new customers acquired. LTV is defined as the total revenue expected from a customer over their lifetime. The document provides examples of how to calculate CAC and LTV using made-up company data. It recommends an LTV to CAC ratio of 3:1 or higher as ideal, indicating the business is making more money from customers than spending to acquire them.

1. THE TWO
METRICS THAT
WILL SAVE YOUR
SAAS
BUSINESS
HOW TO CALCULATE YOUR
CUSTOMER ACQUISITION COST +
LIFETIME VALUE SO YOU SPEND
ONLY ON WHAT BRINGS YOU SALES

2. WHAT’S THE PROBLEM?
▸ You’re working hard. Business is growing.
▸ Lot’s of happy, successful clients
▸ You’ve got a Business Development Team, CRM
integration and are attending all the conferences
BUT…

3. YOU’VE GOT THIS
VAGUE FEELING…

4. ARE WE SPENDING MONEY AND
TIME ON THE RIGHT THINGS TO
BRING IN CUSTOMERS?
You (CEO)

5. YOU’RE NOT
ALONE.
BUT THE TRUTH IS
OUT THERE.

6. ENTER CUSTOMER
ACQUISITION COST(CAC FOR SHORT)

7. WHY WILL CAC HELP?
It will help you:
▸ Know if you put in $ you’ll get $$$ out
▸ What’s working in your marketing and what’s not
▸ Know when you can afford to make hires
▸ Shorten your sales cycle by identifying bottlenecks
▸ See if you’re under or over investing in your marketing

8. OKAY, OKAY…
THE EQUATION

9. TOTAL COSTS ASSOCIATED
WITH GAINING A NEW
CUSTOMER
TOTAL # OF NEW CUSTOMERS
TEXT
IN THE PAST 12 MONTHS:

10. WHAT COSTS DO I INCLUDE?
You (CEO)

11. TEXT
COSTS TO INCLUDE IN YOUR CAC CALCULATION:
▸ All of your advertising spend (Adwords, Facebook Ads,
Display Ads, and Print)
▸ Events and Conference Fees
▸ PR Retainer
▸ Sales Team Salary (base + commission)
▸ Any discounts, free trials or hosting costs

12. $2.62M
1000 CUSTOMERS
TEXT
HERE’S AN EXAMPLE:
Ad Spend $1.06M
Conferences $50k
PR $60k
Sales Team $1.38M
Discounts $70.8k (1%)
Total - $2.62M
= $2,620 CAC
THIS ASSUMES
A PRODUCT COSTING $59 PER SEAT
AVERAGE OF 10 USERS
ANNUAL REVENUE OF $7080 PER
CUSTOMER WITH 1000 CUSTOMERS

13. AND THAT’S IT!

14. WELL, NOT QUITE.

15. KNOWING ONE
MORE NUMBER
WILL ALLOW YOU
TO RAMP UP
SALES AND HELP
YOU SOAR

16. LIFETIME VALUE(LTV FOR SHORT)

17. TEXT
WHAT IS LTV?
▸ It’s the total amount of revenue you’ll receive from a
customer over the life of them using your products
▸ Having a healthy and long LTV means you can more easily
predict where the business will be in the future
▸ More sales and higher profit margins means a higher
valuation, an easier time attracting the team you want and
a sounder sleep.

18. MONTHLY
REVENUE
PER
CUSTOMER
IF YOU’RE JUST STARTING OUT ASSUME CUSTOMERS WILL STAY WITH YOU
FOR 3 YEARS:
ANNUAL
GROSS
PROFIT %
# OF MONTHS
THEY’RE A
CUSTOMER
X X
X X$590 3685% )(
)( - CAC
- $2,620
LTV = $15,434

19. WHOA THERE.
WHAT’S GROSS PROFIT %?
You (CEO)
TEXT

20. EXCELLENT
QUESTION.
WE TEND TO THINK
WHAT THE
CUSTOMER PAYS AS
BEING REVENUE WE
CAN USE.

21. BUT, THAT CAUSES YOU
TO OVERSTATE THE LTV
OF YOUR CUSTOMER.(IT DOESN’T ACCOUNT FOR THE FEES YOU INCUR ACQUIRING THE CUSTOMER)

22. TEXT
HOW DO I FIGURE OUT GROSS PROFIT %?
▸ Think about the costs associated with production of your product:
▸ Hosting and Monitoring
▸ Credit card fees and any transaction fees to partners
▸ Licenses and royalties of products embedded in the
application
▸ Customer Success Teams
▸ Labor for your Dev Team doesn’t need to be included if it doesn’t
really increase when you sell more of the product.

23. $1.07M
1000 CUSTOMERS
TEXT
HERE’S AN EXAMPLE:
Hosting $10k
Credit Card Fee $141k
App License $5k
Customer Success $920k
Total - $1.07M
= $1070 COST OF GOODS (COGS)
PER CUSTOMER
THIS ASSUMES
A PRODUCT COSTING $59 PER SEAT
AVERAGE OF 10 USERS
ANNUAL REVENUE OF $7080 PER
CUSTOMER WITH 1000 CUSTOMERS

24. REVENUE:
TEXT
NOW, COMBINE THE TWO:
GROSS PROFIT % = 85%
/$7.08M 1000 = $7080
COGS: $1.07M 1000 = $1070/
$7080 - $1070 = $6010 GROSS MARGIN
$6010 / $7080 = .8488
.8488 X 100 = 85%

25. TEXT
NOW YOU KNOW YOUR GROSS PROFIT, YOU CAN DETERMINE YOUR LTV:
MONTHLY
PER
CUSTOMER
REVENUE
ANNUAL
GROSS
PROFIT %
# OF MONTHS
THEY’RE A
CUSTOMER
X X
X X$590 3685% )(
)( - CAC
- $2,620
LTV = $15,434

26. WHAT IF MY PRODUCT IS
BRAND NEW?
You (CEO)
TEXT

27. TEXT
YOU’LL NEED AT LEAST ONE MONTH OF SALES.
▸ This will be your ‘Month 1 Cohort’
▸ Look at your churn (# of customers who left) in this Cohort
▸ Then input it into this formula:
# Months used in your LTV calculation = 1/(Average Monthly
% Customer Churn)
* More on that later…

28. NOW, IT’S ON.

29. TEXT
WHAT YOU CAN NOW DO:
▸ See how much $ will give you $$$ in what time frame.
Investors especially like that kind of stuff.
▸ If your LTV negative some big changes for your product
are needed. Now.
▸ Compare your LTV to your CAC as a ratio. That gives you a
benchmark of how effective your marketing and sales is.

30. TEXT
:$15,434 $2620
6 : 1
LTV : CAC THIS ASSUMES
A PRODUCT COSTING $59 PER SEAT
AVERAGE OF 10 USERS
ANNUAL REVENUE OF $7080 PER
CUSTOMER WITH 1000 CUSTOMERS

31. WHAT’S A GOOD RATIO
BETWEEN LTV AND CAC?
You (CEO)
TEXT

32. TEXT
THE RATIOS (LTV:CAC)
▸ Less than 1:1 - for every dollar you bring in you’re
spending more to acquire them. Webvan and you have
something in common
▸ 1:1 - You’re losing money on every acquisition as you’ve
still got salaries, overhead and engineers to cover.
▸ 3:1 - The golden mean. Perfect. Keep at it.
▸ 4:1 - You’re probably under investing in marketing

33. WHAT ABOUT DISCOUNTING FOR FUTURE
CASH FLOW?
WHAT IF I DON’T WANT TO DO THIS MYSELF?
You (CEO)
TEXT

34. TEXT
If you have more questions (or notice an error)
EMAIL AARON (AT) STRATEGYBOX.COM
BOOK A CALL WITH ME ON CLARITY.FM

35. THANK YOU FOR
YOUR TIME.