In subscription-based services, revenue comes two sources: customer acquisition and renewal acquisition. Once renewals become more than 50 percent of the revenue, sales and marketing costs associated with the renewal process begin to become a larger factor in managing profitability. The interesting dynamic is that while the acquisition phase occurs once during the lifetime of a customer, renewal acquisition is an annual event. The multiplier effect of reducing renewal acquisition costs can increase customer lifetime profits substantially. The best way to measure sales and marketing contribution to profits is to measure the ratio between gross-margins generated and the associated sales and marketing costs. So for calculating the customer acquisition cost (CAC) ratio, it would simply be the revenue from new […]
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