Question
I run a SaaS company based on a free open source CMS that we developed internally: LocomotiveCMS.
For a while, everything was free and open source. 18 months ago we decided to turn it into a profitable company so we launched our first offer: LocomotiveHosting that provides hosting for your LocomotiveCMS websites, as well as free upgrades, daily backup and priority support for $19/month/website.
I understand the importance of being able to understand my key metrics such as CAC but I just don't know how to calculate CAC accurately.
We don't spend money on Adwords or on SEO which are often the examples that you'll see in blog articles talking about CAC for SaaS.
And yet, it would be ridiculous to say that our CAC is $0.
We do however have a full time employee working on content marketing.
So among the following tasks (which are the ones that take most of our time), what should go into our CAC ?
- development of the open source product, LocomotiveCMS
- development of LocomotiveHosting, our paid offer
- support to LocomotiveCMS users
- support to LocomotiveHosting users
- writing documentation and tutorials for LocomotiveCMS users.
- writing guides, blog posts, sending newsletters to both LocomotiveCMS users and LocomotiveHosting customers
- copywriting for our website
- improving on-boarding: videos, demo websites, setting up autoresponders with vero or customer.io....
Obvioulsy, if many of the tasks mentioned above go into CAC, our CAC will soar to hundreds of dollars.
Thanks a lot for your help
Answer
The two answers above are great. I would just add that in order for CAC to be useful you also need a reasonably accurate Lifetime Value (LTV) number. It's very important to know if your costs are being amortized over 3 months of revenue or 18 months. I realize you are early in the process of growing this product but its important to make your best guess here, put a stake in the ground with a number and then optimize over time.
Having a LTV number also helps you to decide when to focus on your acquisition costs vs retention costs. Often its not realistic to work on optimizing both at the same time. Good luck!
