When launching an advertising campaign for a software company, the two most important metrics are customer acquisition cost (CAC) and customer lifetime value (LTV). Many software companies are unaware of what their CAC should be, leading to wasted advertising spend. In this article, we have provided the average CAC for software companies broken down by:
A note on CAC:LTV ratios: We recommend that software companies maintain a CAC:LTV ratio of no less than 1:3, but ideally 1:4 or 1:5. To translate, that means for every $1 spent on marketing, $3, $4, or $5 is returned. Generally, software companies in stages of rapid growth should keep their CAC:LTV ratio around 1:3 to ensure the maximum number of customers possible are being generated without burning money.
However, software companies not looking to grow rapidly should aim for a CAC:LTV ratio of 1:4 or 1:5, as this maintains a healthy margin for the company whilst acquiring new customers at scale. Feel free to reach out to us for specific recommendations on a healthy CAC:LTV ratio, as it can and will vary by each company’s situation.
To calculate your CAC, use the following formula:
CAC = Total Spend on Marketing \ Number of New Customer Acquired
Organic versus Paid: You’ll notice each of our CAC benchmarks with the exception of acquisition channels are split into organic and paid price benchmarks. Paid advertising channels, generally Google Ads, Meta Ads, influencer marketing, and other types of advertising where dollars are traded for impressions along a linear relationship.
Inversely, organic methods include non-paid social media (as in posting content), SEO, and email marketing. These channels compound (when implemented correctly) without incrementally more spend on the channels. For example, an SEO campaign will break even, on average, between 6-8 months after launch for most software companies. But, in year three, ROI commonly tops 1,000%.
Now, here are our software company CAC benchmarks.
Average CAC By Industry
We have subdivided the following industries and provided CACs for each.
Healthcare
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Finance and Banking
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Retail and E-commerce
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Education
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Manufacturing
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Real Estate
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Transportation and Logistics
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Hospitality and Tourism
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Media and Entertainment
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Telecommunications
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Legal
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Construction
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Energy and Utilities
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Agriculture
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Government
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Nonprofits
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Human Resources
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Technology
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Food and Beverage
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Average CAC By Market Size
Generally, a smaller market necessitates a more expensive product as CACs rise with a smaller market.
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Average CAC by Customer Size
Whether the software company primarily serves small businesses, mid-size businesses, or enterprise companies will heavily affect the CAC.
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Average CAC by Sales Model
Some companies utilize more labor-intensive sales approaches, which lead to higher CACs.
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Average CAC by Adoption Stage
Companies taking on early adopters as customers will inevitably experience higher CACs as a larger percentage of advertising spend must go towards problem education.
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Average CAC by Price Point
Below is our analysis of various software companies selling products in various price ranges and their average CACs. Your company may have several pricing tiers, in which case CACs should be tracked separately for each pricing tier and measured against these accordingly.
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Average CAC by Acquisition Channel
There is a wide spread in the average CAC across the most common acquisition channels. Generally the lower the CAC, the longer a company must invest in the channel before yielding a result.
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Final Thoughts: Lowering Your CAC
The best way to lower your CAC, at a high level, is to optimize marketing spend towards channels acquiring customers at cheaper CACs. For most companies, this will mean leaning into a thought leadership SEO campaign. SEO consistently generates new customers across industries at lower costs than nearly any other marketing campaign type.
If website traffic is high through other sources such as referrals from other websites or traffic sources such as Google Ads or Meta, consider split testing the copy on the primarily landing pages on the website and optimizing down primary conversion paths.
For more information on SEO or a copy of this report, please reach out to us on our Contact Us page.