Understanding subscriber acquisition cost

Managing your subscriber acquisition cost (SAC) involves you spending just enough to get new subscribers in the door, without feeling like you’re buying them a first-class ticket to the moon! The SAC plays a pivotal role in shaping how product managers evaluate growth strategies and resource allocation. It also serves as a critical indicator when evaluating the success of new product launches, marketing campaigns, and pricing experiments.

With a continuous focus on optimizing SAC, you can ensure that your business maintains a high growth trajectory without sacrificing on quality, ultimately leading to a more sustainable and scalable business model.

What is subscriber acquisition cost?

Subscriber acquisition cost (SAC) refers to the total expense incurred by the business to acquire a new customer or subscriber. This cost includes marketing and sales efforts, advertising, promotions, onboarding, and any other services provided to win the customer over.

You can use SAC to evaluate the efficiency of customer growth campaigns, ensuring that marketing, sales, and services investments yield a positive return. While the costs contributing to the SAC can vary depending on the product and industry, the key components of SAC typically include:

• Marketing and advertising spend — Expenses from advertising, promotions, and marketing campaigns aimed at attracting potential customers. It covers digital marketing, social media ads, content marketing, and all other marketing initiatives. It also includes any fees for tools or platforms used to run these campaigns
• Sales costs — Costs associated with sales teams and channels, such as salaries, commissions, and training expenses related to converting leads into paying customers. It also includes all costs associated with sales enablement tools and resources
• Services costs — Anything related to the initial setup and integration process for new customers, including any onboarding, customer support, or training services provided to ensure a smooth transition. It also includes the cost of resources, technology and tools required for setup and integration, especially if third party systems need to be integrated
• Incentives and discounts — Referral rewards, free trials, discounts, and other financial incentives offered to new customers that directly impact the cost of acquisition. Events that contribute to the community or social welfare of specific groups also incur costs that ultimately contribute to the SAC
• Operational expense — Costs for technology platforms and tools used to track, manage, and analyze customer acquisition initiatives also factor into the SAC. This might include CRM systems, analytics software, and other tools that aid in identifying, attracting, and nurturing leads

How to calculate SAC

Start calculating your subscriber acquisition cost by first identifying all the relevant costs associated with acquisition, including marketing, advertising, sales, services, operational, and any other costs. Then decide the time frame that you want to calculate the SAC for — monthly, quarterly, or annually. This will help in obtaining a comprehensive understanding of all the costs and will also ensure consistency in your calculations.

Next, track the number of new customers gained during the period. This number should include all new customers who have signed up and are paying for your products or are committed to them.

The formula is as follows:

SAC = Total acquisition costs / number of new customers acquired

 

Let’s take a hypothetical SaaS company as an example. It allocates $30,000 to online advertising and $20,000 to additional marketing campaigns. It also pays out $10,000 in commissions to its sales team and incurs a cost of another $5,000 for a CRM and other technology tools used to acquire customers over a six-month period.

The company acquired 750 new customers in that same period of time. Now, let’s calculate the SAC:

Time period = Six months

Total acquisition costs = $65,000

• Online advertising = $30,000
• Marketing spend = $20,000
• Sales costs = $10,000
• Operational costs = $5,000

Number of new customers acquired = 750

SAC = Total acquisition costs / number of new customers acquired = $65,000 / 750 = $86.67

 

In this example, the SAC would be $86.67 per customer over six months.

The importance of subscriber acquisition cost

Your SAC directly impacts the overall profitability and long-term sustainability of a subscription-based business. It helps assess whether the lifetime value (LTV) of a customer justifies the investment made to acquire them, ensuring that customer growth initiatives are cost-effective. The SAC also plays a crucial role in shaping overall business strategy as it provides insights into the efficiency of various acquisition channels and helps in prioritizing where to focus marketing and sales efforts.

A high SAC might indicate the need for a strategic shift, such as exploring alternative marketing approaches, optimizing sales processes, and improving product positioning. Additionally, SAC data helps in setting realistic growth targets and financial projections. By understanding SAC better, you can make informed decisions about scaling projects, entering new markets, and launching new products, while aligning with your business’s vision and long-term strategic goals.

Strategies to reduce SAC

Balancing cost-efficiency with effective acquisition strategies ensures that you attract high-quality customers in a cost-effective manner. Try to leverage these customer acquisition strategies to reduce acquisition costs:

• Optimize marketing initiatives — Ensure that your website, app, and marketing campaigns are optimized for conversions. Focus on the entire user journey. A well-designed user journey can reduce drop-offs and increase conversion rates while lowering the SAC
• Enhance targeting and segmentation — Refine your target audience to ensure you are reaching the most relevant and likely-to-convert prospects. Use demographic, behavioral, and psychographic data to customize your marketing initiatives more effectively. You can implement personalized marketing strategies based on customer behavior and preferences
• Leverage cost-effective channels — Identify and focus on marketing channels that offer high returns with lower costs. For example, social media platforms like Instagram and LinkedIn can provide targeted advertising options at a lower cost as compared to traditional media
• Utilize content marketing — Invest in creating high-quality, valuable content that attracts potential customers organically. Podcasts, blog posts, webinars, case studies, and educational resources can drive traffic and generate leads at a lower cost than paid advertising
• Implement programs and partnerships — Referral programs built on word-of-mouth from existing customers have much higher conversion rates because of the trust factor, so incentivize your customers to refer your products to others

Subscriber acquisition cost case studies

Many companies have successfully implemented strategies to reduce subscriber acquisition costs and improve profitability. Some of these include:

HubSpot

The CRM and inbound marketing company reduced its SAC through a strong content marketing and SEO strategy. Instead of relying on traditional and expensive advertising channels, HubSpot invested heavily in creating educational content like blogs, webinars, and eBooks that addressed the needs of its target audience.

It also focused on SEO and generated high organic traffic at lower costs. By offering valuable content, it built trust with potential customers, converting them to leads and ultimately customers, at a lower acquisition cost.

Slack

The team collaboration company successfully minimized its SAC by relying on product-led growth. Instead of pouring resources into expensive marketing campaigns, Slack focused on creating a product that was intuitive, easy to onboard, and encouraged viral adoption.

It optimized the user experience, making it easy for small teams to sign up for free and naturally upgrade as they expanded. Word-of-mouth referrals and organic usage helped drive exponential growth, without excessive marketing spend.

Canva

The graphic design platform reduced its SAC effectively by creating strategic partnerships with educational institutions, non-profits, and industry influencers. By offering free or discounted access to specific target groups, Canva generated goodwill and built a strong community of customers who advocated for the platform.

Along with an intuitive user experience, these partnerships created a steady flow of customers, without a significant spend on traditional acquisition channels like paid ads.

Conclusion

Effectively managing your SAC helps you drive sustainable growth and maximize profitability. However, understanding your SAC goes beyond calculating the acquisition costs of customers, it’s about refining your acquisition strategies to achieve the most value from every sales and marketing dollar spent.

A strong focus on continuous optimization and innovative acquisition strategies will ensure that your business remains competitive, scalable, and profitable in the long run. The three main takeaways are:

• SAC is an important business metric because it helps you understand how much money you spend and how you spend it to acquire new customers/subscribers for your business
• Always assess SAC in relation to the customer’s LTV. This ensures profitability and helps you make informed decisions that align with your business goals
• By leveraging data-driven insights, optimizing marketing and sales initiatives, and tapping into cost-effective channels, you can reduce the SAC and also enhance the customer LTV

Featured image source: IconScout