Wondering what is the CAC in a pitch deck for your startup?
This is one of the most important factors and metrics for your company, and when pitching potential investors for your startup.
It is vital that you know what your CAC is, how to pitch it, the questions that angel investors and VCs will ask you, and how it all fits together.
This can be an incredible competitive advantage that has the best investors leaping to provide you with a term sheet. Unfortunately, most entrepreneurs get this wrong. They do not calculate it correctly, haven’t done their homework, and find it is an Achilles heel that dooms their ventures from the start.
Here’s what you need to know. As well as some of the other key metrics that you’ll need to get funded.
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. What Is CAC For Startups?
- 2. Why Is CAC So Important?
- 3. For Investors
- 4. For Your Startup
- 5. CAC Versus LTV
- 6. How Much Should Your CAC Be?
- 7. How To Calculate Your Customer Acquisition Costs
- 8. Be Sure That You Are Budgeting For Inflation
- 9. Where To Display Your CAC In a Pitch Deck
- 10. How To Improve CAC Before Your Next Fundraising Round
- 11. Conversion Optimization
- 12. Performance-Based Customer Acquisition
- 13. Produce Better Content
- 14. New Marketing Strategies & Channels
- 15. Partnerships & Collaborations
- 16. Boost Referral Business
- 17. Shorten The Sales Cycle
- 18. Improve The Follow Up Campaigns
- 19. Cut Unnecessary Overhead
- 20. Other Key Metrics Needed When Pitching Startup Investors
- 21. Summary
What Is CAC For Startups?
CAC stands for Customer Acquisition Costs.
This is how much it costs your company to get a customer.
It is how much you will have to spend to get a customer and to keep on gaining more customers.
This is more involved than just a cost per lead or cost per action. It is the basis of your unit economics.
If you don’t display it prominently in your pitch deck, then expect it to be one of the first questions your investor audience asks you.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Why Is CAC So Important?
The CAC in a pitch deck is absolutely critical for startups and in fundraising.
Customer acquisition costs can vary widely depending on your products and type of business. They can range from being almost insignificant to hundreds, and even thousands of dollars.
CAC will dictate how much money you need to raise to get to a specific level. As well as how much investors will need to put in.
In fact, there are a variety of reasons that your customer acquisition costs are important for you, and prospective investors in your startup.
Most obviously, your CAC will instantly tell investors what type of returns they can expect on their investment. It shows how much money needs to be put in to get to X dollars in revenues.
Once you have really nailed down your unit economics and are ready to scale, then it is just about multiplying the results by acquiring more customers.
CAC also shows the viability of your startup. If your customer acquisition costs are just too high, then you may not have a commercially viable business at all. For example, if you are spending $400 to acquire a customer that only ends up spending $600 with you, then the math probably won’t work out.
For some investors, this is also a metric where they can see the value that they can bring to your company by improving it. Perhaps they can instantly plug you into new channels and slash your CAC to almost nothing. Making it instantly profitable, and far more scalable.
In general, the CAC you display in your pitch tells investors whether you really know what you are doing and have done your homework, or not. If you have dropped the ball here, it could be the end of your pitch and chance with this investor.
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For Your Startup
CAC is important to your startup for all of the above reasons. Including being a fundable startup.
With a great CAC metric, you could find this becomes a substantial competitive advantage in your market. If it is, then you should be alluding to this on your competition, and competitive advantage slides as well.
If yours is inferior to your competition, then you will be at a distinct disadvantage and may fail to get traction or survive financially.
CAC Versus LTV
The CAC in a pitch deck is relevant in comparison to your LTV.
That is customer acquisition costs to your customer lifetime value.
In contrast to the example given above, if your CAC is $400 per customer, but the lifetime value is an average of $100,000, then you probably have the makings of a great business and an attractive investment proposition.
Your customer lifetime value (LTV) is how much your customers are going to spend with you, on average, after you’ve won them.
This may be in a one-time transaction. Or it could be in the form of repeat business, a subscription, royalties, annual license renewals, and even referrals. Don’t sell yourself and your startup short here.
Make sure you know your LTV. It could be much higher than you think. This also means you may want to be investing a lot more in customer happiness and retention of those customers.
Don’t be burning clients worth thousands of dollars for trying to squeeze them for an extra 50 cents, or for being too cheap to provide live support that might cost you $15.
How Much Should Your CAC Be?
Unfortunately, there is no exact magic number you need to hit. What is perhaps most important, aside from the return on your investment in acquiring each customer, is benchmarking in your industry.
Your customer acquisition costs need to be competitive in your industry.
Ideally, you will be able to outperform your competition on this metric and establish a clear advantage that allows you to out-market, and out-sell them while earning greater profit margins.
So, to begin with, if you don’t know what the true average CAC is in your industry, start doing your homework on this right now, before you do anything else. Put everything else on pause, because you may not even have a real business here. Or you may be onto a gold mine that will attract far more investment than you expected.
Most specifically, dig into CAC metrics in your niche. Whether you are in the luxury or discount niche, B2C, B2B, or enterprise will make a big difference in the comparables.
How To Calculate Your Customer Acquisition Costs
How do you figure out how much your CAC is?
How much does it cost for you to acquire a new paying customer and make a sale?
Be sure you are doing the full math on this. Downplaying this to investors will only bite you back later. Either it will look like you don’t know your own business, you are lying, or are incompetent. Be transparent, so that you get the funding you really need.
There can be many line items to this calculation. Or you may be getting customers for free.
Often your CAC will include:
- Creation of advertising materials
- The cost of running ads and purchasing media
- Lead conversion costs online or via remote support or in-person sales
How much these costs are, can range widely depending on whether you are running paid online advertising, are working organic SEO, buying leads, are broadcasting via SMS, voice, or direct mail, or are hosting booths at trade shows, operating a retail outlet, or are conducting in-person sales appointments.
Be Sure That You Are Budgeting For Inflation
Customer acquisition costs do not stay static. Every line item can be impacted by inflation. That includes PPC, labor, hosting, and more.
If you didn’t calculate for inflation in the years that real prices went up by 30%, and your sales prices didn’t, but you were operating on the expectation of a 30% profit margin, guess what? You may not even be breaking even.
If real costs went up 50%, then you might be negative for every customer you won.
Where To Display Your CAC In a Pitch Deck
There are a variety of ways to work in your CAC to your pitch deck.
You do not need a specific slide for this.
Though it may show up in your:
- Go-to-market slide
- Business model
- Competition slide
- Competitive advantage slide
- Financial forecasts
How To Improve CAC Before Your Next Fundraising Round
Depending on your startup, industry, and product, there may be a variety of ways to improve your customer acquisition costs for your own profitability, and to become more appealing to investors in your next round.
You may be able to make dramatic improvements in your CAC with a few relatively simple conversion optimization tweaks.
This may be changing up a few words on your website and in your ads, by split-testing different pricing options and landing page layouts, or the flow of your website.
You may want to bring in a specialist to audit your assets and sales process to find ways to improve this.
Performance-Based Customer Acquisition
You may wish to expand into and add some form of performance-based customer acquisition so that at least you are only paying when you get an actual customer. You are not just bleeding money on campaigns.
This may include affiliate programs and commission-based pay.
Produce Better Content
Content marketing is powerful for attracting a high volume of new customers, increasing conversions, and staying top of mind, so that they come back and refer you to others.
You may need to start investing in more content to turn up the volume. You may need to find a better writer to begin publishing higher quality and better converting content.
New Marketing Strategies & Channels
If you are just following the status quo of what you think should be done in your industry, it is probably time to take a hard look at that, and employ the help of a professional marketing strategist to come up with a new plan, and add a few more channels to your mix.
An essential facet of working out customer acquisition costs is knowing how to find your target audience. If you need more information on how to get that done, check out this video I have created. You’re sure to find it helpful.
Partnerships & Collaborations
You might be able to drive down your CAC to almost nothing by embarking on new partnerships and collaborations.
Ask how you can get others to promote and sell for you. Or at least have them pay for your marketing costs, and absorb costs relevant to your sales.
Boost Referral Business
You may also lower your overall true CAC by generating more referrals. If each one of your customers results in 10 more customers, then you would be dramatically slashing your CAC.
This may require taking better care of your customers, being more proactive about asking for referrals and making them easy to give, or targeting a different kind of customer.
Shorten The Sales Cycle
Longer sales cycles can cost more money. Consider how you can shorten that process.
Improve The Follow Up Campaigns
Almost all sales are the result of follow-up. If you are not following up, the CAC in a pitch deck is going to be in terrible shape compared to your competition. It needs to be done well, consistently, and in continuity.
If your systems are holding you back, then you had better pause and better organize your CRM now as well.
Cut Unnecessary Overhead
Look at how you can reduce the overhead involved in your CAC. You don’t need offices or retail stores. You may be able to combine multiple positions and create a leaner salesforce and eliminate meetings to reduce labor costs.
Other Key Metrics Needed When Pitching Startup Investors
Other key data points you need to show in your pitch deck, or at least be able to answer for investors, include the following:
- Churn Rate
- Burn Rate
- Traction & Growth Rate
- Market Size
- Profit Margins
The CAC in a pitch deck is an extremely important number for startups. This is especially true when it comes to fundraising for your startup.
Make sure you do the full math on your CAC, understand how it is relevant, and how yours stacks up to industry benchmarks. As well as the potential to use it to your advantage.
Fortunately, there are also many ways that you can improve this metric ahead of your next round if you need to.
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