SaaS companies vary a lot in their willingness to invest in customer acquisition. For example, the OPEXEngine SaaS benchmark report gives an average payback period for CAC alone of about 18 months (CAC per new customer divided by average recurring revenue per customer). However, SasS companies with expected growth rates in the 20-50% range had a payback period of only 6.5 months, while those with expected growth rates over 50% had an average payback period of….drum roll….35 months! Ouch. While it makes sense to invest heavily in customer acquisition during high growth, SaaS Metrics Rule of Thumb #6 | Growth Creates Pressure to Reduce Total Cost of Service, highlights the importance of keeping average CAC per customer in check as you grow. Even if you’re angling toward an IPO with a churn rate under 10%, I think it’s near impossible to justify a 3 year payback period just to cover CAC. Talk about negative cash flow!!
More SaaS + Software Stats
When determining Sales Capacity, “it’s worth noting that some percentage of new sales hires won’t meet expectations, so that should be taken into consideration when setting hiring goals. Typically we have seen failure rates around 25-30% for field sales reps, but this varies by company. The failure rate is lower for inside sales reps. can be counted as half of a productive rep”
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Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.