What is CAC recovery time?
CAC (Customer Acquisition Cost) Recovery or CAC Payback time is the number of months it takes for a company to recover the costs associated with acquiring a new customer. It is an important metric for businesses that rely on customer acquisition to grow.
How to calculate CAC recovery time?
To calculate CAC recovery time, divide the ‘total cost of acquiring a customer’ (CAC) by the ‘average monthly revenue’ generated by that customer (MRR). CAC payback or recovery is typically measured in months.
Formula for calculating CAC recovery time
Real-life example of CAC recovery time
Let’s say you run a micro SaaS company. Your company spends $200 on marketing and sales efforts to acquire a new customer. And, this customer generates $50 in monthly revenue for the company. Then, the CAC recovery time will be: 200/50 = 4 months
This means, it would take your company 4 months to recover the costs associated with acquiring this new customer through their monthly revenue.
What’s considered a good CAC recovery time? (benchmark)
A good CAC recovery period is considered to be not more than 12 months. It’s best if you achieve a recovery period of 5 months (or less). According to ProfitWell, SaaS startups average about a 5-12 month CAC payback period.
In general, a shorter customer acquisition cost recovery time is usually better, as it indicates that a business is able to quickly recoup its investment in acquiring new customers and start generating a profit from them.
A study into payback periods of SaaS companies shows an average of around 16.3 months.
Ways to reduce your CAC recovery time
- Focus on improving customer retention: By retaining existing customers, you can reduce the need to constantly acquire new ones, which can help reduce the CAC payback period. You can provide offers or discounts to retain likely churns. Find out more: 16 Proven Customer Retention Strategies
- Streamline your sales process: By making your sales process more efficient, you can reduce the cost of acquiring new customers, which can help shorten the CAC payback period. Make to most out of modern approaches and automate tasks.
- Use pricing strategies to increase customer value: Different pricing strategies, such as offering discounts, subscription-based pricing, bundles, or add-ons, can help increase the amount of revenue generated from each customer, which can help reduce the CAC payback period.