How to Calculate CAC Payback Period for Subscription Businesses
Вставка
- Опубліковано 4 лип 2024
- I show you how to correctly calculate the CAC payback period for a subscription business using cohort analysis. Free model download included if you want to plug in your own numbers.
➡️ Book a demo with Ordergroove to take your customer retention and recurring revenue to the next level ► www.ordergroove.com/eric/ (use this link or mention me to be eligible for 10% off your annual contract)
👉 Follow Ordergroove on LinkedIn - stay up-to-date with the latest subscription trends / ordergroove-inc.
✅ Download the Excel template: mailchi.mp/ericandrewsstartup...
Communities:
💼 Linkedin: / eric-andrews-1624b656
🚀 The "Finance for Startups" Program: www.ericandrewsstartups.com/f...
☑️ Twitter/X: / eric__andrews
🌟 Instagram: / ericandrews_startups
🔥 Discord: bit.ly/discord_eric
💻 Newsletter: bit.ly/joinericnewsletter
🎥 Clips: / @ericandrewsclips7818
Related Videos:
🚩 Cohort Analysis | How VCs Calculate Customer Retention: • Customer Retention & C...
🚩 How Prepaid Subscriptions Triple LTV for eComm: • How Prepaid Subscripti...
🚩 Finance for eCommerce Playlist: • Finance for eCommerce
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
In this video, we walk through how to use customer cohorts to understand the real payback period calculation for a subscription-enabled eCommerce (subscription box business) & SaaS startup.
In my experience, 99% of founders calculate their CAC payback incorrectly, because they think about it on a 1-customer basis, and they don't incorporate customer churn and declining retention into their model of how the initial customer acquisition gets paid back.
In this video I will show you how to use your unit economics & customer cohorts to very accurately calculate this metric!
SECTIONS:
0:23 who's this video for and why does it matter (any business selling on a subscription)
1:17 overview of definitions (CAC, gross profit, CAC payback period, customer cohort)
3:19 unit economics setup and the classic miscalculation of CAC payback
4:00 why this traditional calculation of CAC payback is totally incorrect
5:26 CAC payback period calculation case study - eComm business with high churn rate
9:34 book a demo with Ordergroove www.ordergroove.com/eric/
10:27 CAC payback period calculation case study - SaaS business with low churn rate
If you have questions - leave a comment below and I'll try to help. Cheers!
#ecommerce #saas #customercohort #uniteconomics #cacpayback
Questions? Let me know in the comments, happy to discuss.
Also, feel free to download the file here: mailchi.mp/ericandrewsstartups/udywbfi4cr
Hey Eric, love your content, just a friendly bit of advice - give us the option to download the excel template immediately after sign up. I've been waiting for 10+ mins to receive the email with the template and all I wanted was to watch this video and apply immediately. Keep up the good work.
Hey thanks for the comment I will take that into consideration this year, cheers!
Thanks for the great video. Just a few questions, this will be for a projection asuming you adquired all the costumers in the first month. What would be the method if the costumers are adquired over a period of time? Also I think if the costumers are adquired through time this would change the CAC over time, if so, any advice about the timeframe to update the CAC value, or should we take a set value at the start ?
Sure, it's a good question. This video is specifically focused on optimizing the customer lifetime value of one or a small group of customer, not a financial projection over a long period of time. I would measure CAC on a weekly or monthly basis, and constantly monitor it to make sure that you have good unit economics (CAC vs. LTV). If CAC goes up significantly, you need to make sure you can afford that. I would also make sure to be watching the customer retention (monthly or quarterly), to see if your LTV is going up or down, and update this payback model accordingly. So yes, you definitely should monitor all the data and update it occasionally.
Hey!
If you are open to it, I love to speak with you offline to discuss how we can potentially open up a new customer segment for you with Credit Unions and Community Banks
Thank you for the video. Please consider making career guide for private equity, so that it helps with interview preparation and career advancement. Thank you.
Hi Eric, thanks for the video. But can you share the link of this excel sheet?
It's for free in the description
Hey Eric, another great video.
How would you advise a service based company that does not have a subscription business model to calculate their CAC payback??
I work in real estate, and brokerages pay money to recruit, onboard and train realtors to production. Brokerages do not get paid unless the agents produce transactions.
I have a feeling brokerages waste a ton of money recruiting because of the time it takes to recruit and onboard an agent to productivity, but I want to quantify this to show the shareholders.
Same concept but it is without subscriptions so the revenue retention is probably a lumpier tail. Ultimately it is still just total CAC and then how long it takes to re-earn that CAC (in terms of gross profit) over a period of time, even as the agents churn off. Do you have a full data set or something you could model it off? I would go month by month and say "we paid X to recruit 100 agents" in month 1 we made Y, in month 2 we made Y, and so on and so forth until it is paid back
@@eric_andrews You're a genius man! Appreciate this so much.
@@realmarketingpodcast 👍
these vidoes really change the game
Appreciate it. That's the goal 😎