Customer Acquisition Cost (CAC) is a key SaaS Marketing metric, and Pricing Page optimized for conversions can help keep it low.
If you have built a real business - or are looking to - around a SaaS or Web App that you know people will subscribe to, then you should take care to track certain metrics. Tracking these metrics will be like keeping a finger on the pulse of your company at a business level. Bessemer Venture Partners published - and continues to refine - their list of the key metrics they want to see tracked by their current - and perspective - portfolio companies. One of the key metrics to understand is Customer Acquisition Cost (CAC) - or the cost to attract and convert a customer.
BVP has taken that key metric and created the CAC Ratio - a formula that indicates whether the return on your CAC is too slow - meaning your marketing is ineffective, sales cycles are too long, there are too many barriers, etc. Read more about the formula on the BVP site, but the gist is this; if you have a CAC Ratio of .33 for example, it means it takes 3 years to make enough money from your customer - via your Recurring Revenue stream - to pay for what it cost to acquire them. Yikes!
On the other hand, if you can get payback in less than a year, resulting in a CAC Ratio of >1.0, this indicates, according to Bessemer, that marketing spend is working well and that you should ramp up your efforts and start acquiring more customers. By the way, if you have a CAC Ratio of >1.0, BVP would like to speak with you - they have some of your money in their pocket!
All of that makes sense, if you think about it. If you can completely pay for the CAC in the first year of service with a client, and we assume a 3 year customer lifetime - meaning the average customer sticks around for three years - then from month 13 to month 36, aside from fixed operating costs, that client is all profitable revenue - especially when coupled with techniques to increase Customer Lifetime Value (CLV). This has always been the goal Sixteen Ventures has instilled in its clients -> get to profitable revenue as quickly as possible. CAC Ratio is a great measurement tool, indeed.
But what if your CAC Ratio is low? What could you do to improve it? While there are a number of things you could do - make ad spend more efficient by ensuring ads targeting the right audience, create affiliate programs, leverage third-party distribution - there are some immediate fixes you could make that could result in lower CAC, due in part to a more streamlined customer acquisition process. And yes - this is directly related to your Pricing Page design. Aside from things such as reducing barriers to entry for new customers, testing shorter free trial periods (remember, support costs pre-revenue are essentially marketing spend and should figure into CAC - ask your accountant though), etc., one amazingly effective way of reducing CAC is through market segmentation.
In the context of SaaS and Web Apps, market segmentation is where you drive the customer to a specific area of your marketing website - and eventually to a pricing page - with more targeted messaging, pricing metrics, tiers, etc. There are many ways to do this, from simple nudges on the main website, to landing pages, micro-sites, or even multiple brands of a product more aligned with the target audience. No matter what, the idea is that different audiences will find different value in your product - even if those audiences are just different sized companies in the same vertical - and to reach them most effectively, you need to speak their language and understand their value perception.
Market segmentation can be used in a completely automated, self-service sales process, or can be used to effectively and efficiently send some clients through the automated process while funneling others to lead capture forms for an inside sales team. Understanding how to leverage market segmentation to deliver the right message and the right value-based pricing metrics to your target audience is a fantastic way to reduce sales cycles and improve CAC Ratios.
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