Dan Martell - October 26, 2020


How to Calculate Your Customer Acquisition Cost (CAC) in 3 Easy Steps!


Episode Stats


Length

5 minutes

Words per minute

189.23767

Word count

1,055

Sentence count

48

Harmful content

Misogyny

1

sentences flagged


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, I teach you how to calculate your CAC, the principles behind it, and the equations to make sure you re measuring things so you don t look like a weirdo in front of potential investors.

Transcript

Transcript generated with Whisper (turbo).
Misogyny classifications generated with MilaNLProc/bert-base-uncased-ear-misogyny .
00:00:00.000 Hi there, Dan Martell here,
00:00:01.040 serial entrepreneur, investor, and creator of SaaS Academy.
00:00:03.400 In this video, I'm gonna teach you how to calculate your CAC.
00:00:06.600 What I really mean to say is how to calculate your cost
00:00:08.840 to acquire a customer in an easy three-step equation.
00:00:13.480 And be sure to stay at the end,
00:00:14.320 we're gonna share with you an exclusive resource,
00:00:16.140 my precision scorecard that's gonna give you clarity,
00:00:18.820 accountability, and the list of metrics
00:00:20.920 you need to be managing to move your business forward.
00:00:23.680 So let's get into it.
00:00:30.000 So, over the years, I've built five software companies myself. And the third one was a
00:00:41.840 venture-backed company. I still remember when we were trying to pitch investors and we're sitting
00:00:46.340 down meeting with them and they ask questions like, you know, how's your churn? How's your
00:00:50.800 burn rate? And then they go, what's your CAC? Your cost to acquire a customer. And we would give them
00:00:55.060 a number and then they would go like wow that's incredible are you sure and we're like yeah we
00:01:00.120 ran the numbers we looked at our ads that's what it cost us to acquire a customer and they said
00:01:04.600 but is that your fully loaded cac and my brain just went never heard that term before what does
00:01:11.600 fully loaded cac mean and what am i missing because he was impressed with my number something
00:01:17.360 tells me that the real number may not be as impressive and it's probably going to negate
00:01:21.640 the meeting. In this episode, I'm going to share with you how to think about CAC, the principles
00:01:26.140 behind it and the equations to make sure you're measuring things, right? So you don't look like
00:01:30.820 a weirdo in front of a potential investor. Number one, CPA does not equal CAC. So CPA stands for
00:01:38.160 cost per acquisition. Essentially, what does it cost you to acquire a customer? But it's not your
00:01:42.940 cost to acquire a customer. It's cost per acquisition, which is typically measured through
00:01:47.680 your ad spend. So CPA is if you're running ads, let's say you spend a thousand dollars a month
00:01:52.680 on acquiring customers through Facebook and you get a hundred customers, then essentially you
00:01:58.040 spent $10 for a CPA to acquire that trial signup demo, whatever your, well not demo, but probably
00:02:05.520 paying customer, whatever you use as a sales motion, that is your CPA. And it only includes
00:02:12.720 for the most part, your ad spend.
00:02:14.900 Number two, the CAC equation.
00:02:16.940 So here is the math for you to measure the CAC
00:02:19.160 so you get it right the first time somebody asks you.
00:02:21.660 It is your marketing expenses plus your sales expense
00:02:25.960 divided by the number of customers for that period.
00:02:28.720 So your CAC can fluctuate on a weekly basis
00:02:31.180 versus monthly versus quarterly versus yearly.
00:02:33.860 And what you do is for that period,
00:02:35.360 just measure up all of those expenses
00:02:37.340 divided by the number of new customers
00:02:39.100 you've acquired sometimes per segment
00:02:40.860 if you're selling different plans.
00:02:42.100 And that is how you measure the cost to acquire customers
00:02:45.680 in three easy steps.
00:02:47.980 But we've got more because some of you
00:02:49.440 are not thinking of the broader picture
00:02:51.260 and you don't wanna look like you don't have the answer
00:02:53.200 if a VC asks you to truly measure the fully loaded CAC.
00:02:56.820 Number three, expenses.
00:02:58.780 What does that mean?
00:02:59.460 When somebody says, you know,
00:03:00.400 your marketing expenses and your sales expense,
00:03:02.640 a lot of folks don't realize, but it means everything.
00:03:05.900 It means salaries, it means overhead, your lease agreement.
00:03:09.480 So companies and investors will actually ask you
00:03:12.460 to look at the square footage on a lease.
00:03:14.700 If it's 20% of your square footage of an office
00:03:17.120 is dedicated to sales and marketing,
00:03:19.020 they'll want that put into it.
00:03:20.820 Also the software tools, you know, all the SaaS tools,
00:03:23.340 the CRM tools, the attribution tools,
00:03:24.960 the marketing platforms, your cost for ads, et cetera,
00:03:28.520 all of the tools associated to generating that revenue.
00:03:32.900 And some people, okay, I'm not sure if I'm there yet,
00:03:35.460 but some people even go as far as a portion
00:03:38.840 of your customer success team
00:03:40.640 that's responsible for revenue growth.
00:03:44.080 So any expansion revenue or retention
00:03:46.400 where you're compensating,
00:03:48.300 I would personally say, okay, well,
00:03:49.820 if you're asking me to put my customer success team,
00:03:51.820 I'm only gonna put the,
00:03:53.840 maybe the bonuses that I'm paying out
00:03:56.580 based on retention goals or expansion revenue.
00:03:59.080 I'm not gonna put their salaries
00:04:00.120 because I kind of put that in the,
00:04:01.260 kind of the operations of the business.
00:04:03.500 But that is, when somebody asks you
00:04:05.380 what's your fully loaded CAC,
00:04:07.700 It means lease agreements, like square footage, tools, salaries, and any other kind of expenses
00:04:15.960 associated to revenue generation. So three principles to understand when it comes to
00:04:21.020 calculating your cost-acquired customer. Number one, your cost per acquisition is not your CAC.
00:04:26.620 CAC is the simple equation of marketing sales expense divided by number of new customers. And
00:04:31.980 be sure, number three, that when you're looking at expenses, you look at tools, overhead, salaries,
00:04:36.880 that is your fully loaded CAC.
00:04:39.620 So as I mentioned at the beginning of this episode,
00:04:41.380 I wanna share with you an exclusive resource
00:04:43.160 called the Precision Scorecard.
00:04:45.300 It's a process and a framework that I created
00:04:47.460 for my coaching clients to help them get visibility,
00:04:50.260 accountability, and an understanding
00:04:51.960 of the core metrics laid out in a funnel
00:04:54.260 to help you know if your business is moving forward.
00:04:57.400 So you can click the link below
00:04:58.280 to download your copy of that yourself.
00:05:00.680 It has all of the key metrics.
00:05:02.120 It's got the reporting structure
00:05:04.300 that you can swipe and copy for your own business
00:05:07.260 and make sure that you start holding your team accountable
00:05:09.620 to moving those numbers forward.
00:05:11.120 Just click the link, download that below.
00:05:13.120 And if you liked this video,
00:05:14.040 be sure to smash that like button, subscribe to my channel
00:05:16.700 and leave a comment below and let me know what your CAC is.
00:05:20.500 If you're interested in getting some feedback from me,
00:05:23.520 just leave that comment. 0.97
00:05:24.700 And as per usual, I wanna challenge you
00:05:26.540 to live a bigger life and a bigger business
00:05:28.320 and I'll see you next Monday.
00:05:30.480 Why are you plugging your ears?
00:05:31.820 Cause it's-
00:05:32.660 Oh, to listen.
00:05:33.660 What else?