Show CS as a Revenue Multiplier

CAC:LTV shows the true cost of growth and in this week’s newsletter I’ll break this metric down. 

As a CS leader, if you improve onboarding, reduce churn, and drive expansion then you can improve your CAC:LTV ratio and prove your org is not a cost center but a profit multiplier.

First, let’s start with what CAC is?

CAC is the total cost a company spends to acquire a new customer, including marketing, sales, and any other related expenses.

Formula:

CAC = Total Sales and Marketing Costs Divided by Number of New Customers Acquired

For example:

If your company spends $100,000 on marketing and sales in a quarter and acquires 200 new customers, your CAC would be:

100,000/200 = 500

So it cost $500 to acquire each customer.

Key things typically included in CAC:

• Salaries of sales and marketing teams

• Advertising spend (Google Ads, LinkedIn, events, etc.)

• Tools and software related to marketing and sales

• Content production costs (e.g., videos, blogs, webinars)

• Outsourced services (e.g., contractors, agencies)

Why it matters in SaaS:

Because in SaaS, you often make back your acquisition cost over time through subscriptions. So understanding CAC helps you figure out:

• How quickly you break even on a new customer (i.e., CAC payback period)

• Whether your business model is scalable

• How efficient your sales and marketing efforts are

This is often paired with LTV - Lifetime value which is a metric that CS leaders should be focused on very closely. 

You want a healthy LTV:CAC ratio, usually around 3:1(meaning for every $1 you spend acquiring a .customer, you get $3 back over their lifetime) to run an efficient business

In SaaS, here are some general benchmarks on what a “good” LTV:CAC ratio typically is:

• 3:1 = Strong and healthy

• 4:1 or higher = Excellent, but might suggest you’re under-investing in growth

• 2:1 = Borderline, means customer acquisition is getting expensive or retention is weak

• 1:1 or lower = Bad, you’re losing money acquiring customers

Why 3:1 is the sweet spot:

• It shows you’re efficiently acquiring customers and they are valuable over time.

• You’re not overspending (which kills cash flow) or underspending (which could slow growth).

If you see a 5:1+ LTV:CAC ratio, it’s a signal you might want to spend more aggressively on sales and marketing because you’re being too conservative.. 

Another metric that is tied to this and important to watch is the LTV payback period. The LTV payback period is how long it takes you to earn back the money you spent acquiring a customer,  purely from their gross margin (usually subscription revenue only, not services).

In SaaS, a “good” CAC payback period is typically:

• < 12 months = Very strong

• 12–18 months = Good

• 18–24 months = Okay, but could be better

• > 24 months = Concerning, especially for early-stage or mid-stage companies

Example:

• You spend $1,200 to acquire a customer.

• They pay you $100/month in revenue, with 80% gross margin.

• So you’re earning back $80/month.

• Payback = $1,200/80 = 15 months.

But just like with everything context matters. Your payback will be different if you are a PLG company vs a large Enterprise SaaS company:

• PLG (Product-Led Growth) SaaS companies (like Zoom, Slack early on) often have super fast paybacks, like 3–9 months.

• Enterprise SaaS (like Salesforce) often accepts 12–18 months because deal sizes are bigger, renewals are stickier, and expansion is common.

Investors typically want:

• Fast-growing SaaS startups: under 12 months is ideal.

• Public SaaS companies: <18 months is acceptable if growth is high.

Why it’s critical for a Customer Success executives to focus on LTV:CAC

1. Customer Success Directly Impacts LTV

• Your team’s work: onboarding, adoption, renewals, expansion directly grows customer lifetime value (LTV).

• High retention and expansion = longer lifetimes, higher revenue per customer = better LTV:CAC.

• If your customers churn early or never expand, even the best acquisition efforts fail because LTV collapses.

In simple terms:

If CS drives strong retention and expansion, you dramatically improve the return on every dollar spent acquiring customers.

2. It Connects Customer Success to Revenue and Efficiency

• LTV:CAC isn’t just a marketing or sales metric, it shows how efficient the entire customer journey is.

• Success teams that impact gross and net revenue retention (GRR, NRR) are directly tied to profitability.

• A great CS org means you don’t just close customers, you grow them - and that turns an OK LTV:CAC into a great one.

3. It Helps Prioritize CS Investments

• If your CAC is high, and CS isn’t improving LTV, you’re leaking money.

• Knowing the ratio helps you argue for investments in better onboarding, account management, renewal programs, customer marketing, etc.

• You can show how an extra CSM, better playbooks, or expansion programs are not just “nice-to-haves” they improve company unit economics.

Example talking point for the board:

“By increasing NRR by 10%, we can improve LTV by 15%, which improves our overall LTV:CAC and drives profitability without increasing CAC.”

4. It Elevates CS to a Strategic Seat at the Table

• Many SaaS companies still view CS as reactive, by focusing on metrics that impact the entire business like LTV:CAC you can start to flip that narrative.

• It shows that CS is a revenue multiplier.

• As a CS leader, if you talk in LTV:CAC, NRR, and payback periods, you’re speaking CEO/CFO language, not just “customer happiness” that’s how you become a key executive voice.

Bottom line:

As a CS executive, you’re the guardian of LTV.

Improving LTV improves company valuation, margins, and growth — all without needing to burn more cash on acquisition.