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