Customer Acquisition Cost: Avoiding a Business That Leaks

CAC might be the metric that’s holding you back. But that isn’t the entire truth. Here’s a reframe, one that may change how you think forever.

Without revenue and profit, a business dies eventually. And behind it all is a simple concept known as the CAC or customer acquisition cost- it is either a balance or a leak that hurts profits and revenue.

Of course, solving for the CAC to be perfect is a folly of its own. There’s a reason so many tools and products cost so much: the supply chain of any given product is vast, and there are many vendors involved in the process. Whether that’s marketing or talent outsourcing or some other reason, vendors make up a vital part of a business’s process, and a bad vendor can mean the doom of an organization.

And yet marketing teams and the founders of their companies are stuck measuring CAC as: Marketing Spend/No. of Customers.

What is wrong with the industry? No wonder organizational prices are ballooning up, and backfilling becomes the norm. Of course, churn’s going to exist- this piece doesn’t serve to help you remove churn, and if someone is promising you that, you should be scrutinizing them and their process to make sure it’s the truth.

The point here is that marketing teams in B2B SaaS are missing something vital.

It’s the digital supply chain and vendor relationships. You wanna know why the CAC is up this quarter when sales were smoother? It’s not the marketing budget- it’s the way the ship is being run. It’s about time the founder takes responsibility for the cost.

And if your company doesn’t have one, then to the CEO it is.

CAC: The truth every founder needs to know

Your CAC is good, and everything is running smoothly marketing-wise, but why is your revenue not matching the organizational pace? And why is the marketing spend just increasing?

See, you don’t need another shmuck telling you what to do. So this is not what to do, but the things you need to watch out for.

What you need is not advice but a different lens to look into specific problems. No one knows what it is like in your shoes, and they shouldn’t assume your vantage point. It is lonely at the top, after all.

So here’s a view from down in the hills: even if your CAC is fine, your business is leaking revenue because the way CAC is calculated is very 1-dimensional. This is simple.

CAC is how your entire organization is run to capture one customer, and it is folly to calculate it as marketing spend divided by the number of customers acquired.

No wonder people blame marketing. It’s because the industry has let this happen. Leads. Captures. Data. These are abstract concepts.

The reality is that the buyers care whether the product or service you have is solving their problems- the marketing is there to amplify the organization’s message. There are two schools of thought that are vital to this discussion: –

1. Michael Porter posits that strategy is the act of unique execution.
2. Marketing success is based on the unique execution of the organization.

Without this, everything crumbles. This is a recent example; we found this during research.

Disruption of the supply chain

Essentially, some hackers targeted the npm package, and it affected millions of users. This is how organizations get their data stolen.

And a weak supply chain not only disrupts your users but also erodes the trust they have in you. Once trust erodes and the word spreads, it becomes difficult to acquire customers, making marketing’s job that much harder.

But this is a breach in the software part of the digital supply chain- what happens when something else in the chain sets off? For example, you just sent off a file to your buyers and their legal team sends you a checklist of items, and there’s a redline that says: “If you have an XYZ vendor in your Supply Chain, we might have to go over the contract. They have been blacklisted for undisclosed reasons.”

And lo and behold, that vendor is in the supply chain. This is a double whammy. NPM attacks and a vendor’s mistake caused a delay in the deal. Every moment spent is money out of your pocket. And worst case? What if this doesn’t go through?

What’s going to happen to the CAC now? Many things, but it will affect trust, word of mouth, and everything else. Again, making marketing’s job that much difficult. CAC suffers; the negative loop continues.

You need to anticipate: –

1. The SBOM of your potential leads
2. And get the SOC 2 (While this is here, the assumption is that your product or service has this before you even got your first buyer.)
3. Get a third-party risk management audit done before your buyer has the chance to.

Founders and CEOs, understand, yes, you have delegated marketing, but that doesn’t mean the rest doesn’t fall on your shoulders. Don’t pull out of marketing before you get to auditing your process and the way your product reaches the market.

The Role of Marketing in CAC

Now, we operate under the belief of the above section. So what is marketing’s role in improving CAC?

Let’s move away from leads- that’s the job of your trusted agency partner anyway (Hey, we’re Ciente, a trusted marketing agency!)

What you do need is to become a strategic function- a pillar that manages customers and does so profitably. And this is what marketing was supposed to do- it isn’t a content farm. The content is a vessel for communication.

What it is supposed to do is enable you to build a brand and find strategic opportunities for market penetration. Sometimes, this just so happens by hopping on a trend. Wild world we live in.

But hey, your founders are blaming you for messing things up, and the CAC is bad, and the CLV is leaking. This is just the first 3 hours of your job anyway. You know what’s going to work, so why not do it? You have the most data of all the teams combined and understand what the market wants and needs.

And once sales align with you- oh, you know the stats for it. But here’s a reframe that should help you speak to the founder.

Identifying the leaks

Your organization has leaks, you know it, and they run deeper than the organization. These leaks exist all over the market- these could be trust markers, or changes in product that are a long time coming, but aren’t because of equilibrium in the market.

But you have data. You have viewpoints. You have a strategy- that’s why you are the marketing leader. But much of your time is being wasted putting out fires and then being blamed for them.

So what do you do? Projections.

Let’s run this experiment: –

1. You project what’s going to change based on the data from marketing and sales.
2. You suggest these changes, which will be a controlled experiment, to your CEO or founder. It’s like multivariate testing but for the organization. Choose things that, if broken, won’t affect the organization anyway.
3. See if the projections match reality.

Yes, this is what you already do for advertising. The job is the same, the scope varies by a margin.

Bridging the engineering gap

Remember SEO audits? Yup. That’s what you’re going to do on the supply chain. Again, this is radically complex because the idea says: –

1. Break down the silos.
2. See what’s not working.

But again, you have to be positioned to do this. Why does McKinsey get a say in consultancy but not the in-house team?

Back to the point, this involves you as a leader understanding differing perspectives.

1. What are sales saying?
2. Customer success?
3. And vitally, the engineers.

The engineers are what’s driving the show, and sometimes it gets rough even for them. They need your help to understand the product. But isn’t this such a rosy picture? You go to the engineering team, and they are like, “Yeah, sure, we will add that feature. Were magicians with infinite time on our hands anyway?”

But what you need to do here is help them understand why the product isn’t standing out the way they hoped it would, and that requires a certain political acumen. But why are you letting that stand in the way of improving things?

The answer is: because it’s not your job.

That is changing rapidly.

Bridging the trust gap

There are many more that you can do to improve not just this metric called CAC, but the entire organizational structure. But the most important one is trust.

How is trust gained? It’s showing up when it counts. But that is too complex to quantify. And marketing, even though a very human endeavor, needs to be quantified. So trust can be quantified as whatever metric you choose- brand mentions, smoother conversations, faster deals, etc.

Though the path to reaching the metric is finding blind spots- a lot of marketing is reactionary to problems. Almost PR in a way. Something fails, and you scramble for an apology or to put the fire out.

But what if, during ABM or any other personalized campaign, you saw that some buyers don’t like a specific vendor? You can choose not to do your job with them- you can avoid risks before they arise. But this means letting go of vendors that you know are just going to give you lead lists or unverified data or low-quality work in general.

Trust is built through a process of customer understanding, repeating what they know, challenging assumptions, and showing them proof of the assumptions. Of course, some will enjoy the echo chamber, and for them, the step ends at repeating what they already know.

What do businesses need to do with the CAC? Rethink it.

This piece has one purpose: not to look down on people who run the organization and to show a different perspective.

You may not agree with some or all of it, and that’s fine. Because no one knows your position better than you do. You have the tools and the data, but is it all for targeted advertising?

That has to be a reductive view. The CMO role is shrinking, and the AI systems are getting smarter, but people will find new ways of working. The question is: will organizational structures match today’s reality or become a relic of a bygone era?