How to break down the variables used to calculate the payback period?

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Sales and marketing expenses for Quarter 1 also include all costs to acquire new customers in Quarter 2.
The difference in subscription revenue between the two quarters is the amount of new revenue that was added by customers acquired in the second quarter.


Example:

Total sales and marketing expense (including marketing campaigns portugal whatsapp number database and salaries for both teams) for quarter 1 plus quarter 2 expenses is $6,000.

Quarter 1 revenue is $2,750 and Quarter 2 revenue is $4,000. The difference between revenues is $1,250.

CAC Payback = 6,000 / 1,250 = 4.8 quarters = 1.2 years

To determine how much of your sales and marketing spend is recovered in a year, you need to reverse the equation:

The difference in subscription revenue between quarters ($1,250) divided by the previous quarter's sales and marketing expense ($6,000). Once the result is found, multiply by 4 to find the expense that will be repaid in one year.

Proportional CAC = 1,250 / 6,000 = 20.8% x 4 = 80.3%

The CAC ratio is 80%: This means that the SaaS company will recover 80% of the acquisition cost to acquire Q2 customers, within a year.

It is recommended to calculate payback periods according to the different types of customers. Some possible categories are:



High volume, low contract value customers that are acquired quickly at low cost.
Low-volume enterprise-level customers with high contract values, longer sales cycles, and higher acquisition cost.
Customers who were acquired with marketing spend, do not contribute revenue and have the potential to upgrade to a paid plan.


Payback periods and acquisition methods are different for each customer group. Similarly, strategies to improve these aspects should also vary by category. Breaking down payback periods helps to configure different ways to acquire customers efficiently.