The CAC Trap: How Portfolio Companies Can Escape
Customer acquisition cost (CAC) keeps creeping up. Paid channels feel more crowded. Sales cycles stretch. If you run a portfolio company, this can choke growth and burn cash. Below is a simple field guide to spot the CAC trap—and get out fast.
Why CAC Feels Worse Right Now
Paid clicks cost more. The average Google Ads CPC is $4.66 across industries.
Social CPMs are rising. Forecasts show year-over-year CPM increases across Meta, TikTok, Snapchat, and YouTube.
Payback is long. In recent SaaS benchmarks, median CAC payback sits at 20–25 months—too slow for many PE timelines.
But retention is holding. Public SaaS net dollar retention has stabilized around 110%, which means growth is still possible—if you acquire the right customers.
The CAC Trap (In One Line)
You spend more to win a customer than that customer returns in profit fast enough. If your LTV:CAC is under 3:1, you’re likely underwater.
What to Measure Every Week
• CAC payback (months): Drive toward 12–18 months; over 20 months is a warning sign.
• LTV:CAC ratio: Target ≥3:1 before scaling spend.
• Net dollar retention (NDR): Push for ≥110% so expansion offsets CAC pressure.
• Win rate & cycle time: Small improvements here can beat big ad budgets.
How Portfolio Companies Escape
1. Tighten the ICP
• Cut segments that churn or discount.
• Double down where win rates are highest and cycles are shortest.
• Add “no-go” rules so sales avoids poor-fit leads.
2. Shift Spend from “More Leads” to “Better Conversion”
• Fix messaging and proof points on key pages and decks.
• Invest in sales enablement: objection banks, talk tracks, recorded role-plays.
• Track stage-to-stage conversion relentlessly.
3. Diversify Beyond Paid
• Partner-led and channel-led motions (alliances, marketplaces) can reduce CAC.
• Launch a referral program tied to delivered value, not just signups.
• Build owned media (email, events, communities) to lower blended CAC.
4. Make Onboarding a Secret Weapon
• Cut time-to-value with a 30-day customer success plan.
• Automate setup, training, and handoffs.
• Faster early value = higher NDR, which relaxes CAC pressure.
5. Rework Pricing and Packaging
• Align pricing to outcomes; drop low-value SKUs that attract churn.
• Add usage or expansion tiers that lift NDR without extra CAC.
6. Use AI to Lower CAC Where It Matters
• Deploy propensity models for targeting and account scoring.
• Run creative testing at scale to cut wasted ad spend.
7. Mandate a PE-Grade Operating Rhythm
• Weekly: pipeline health, conversion metrics, win-loss notes.
• Bi-weekly: payback trends, LTV:CAC, CAC by channel.
• Monthly: NDR, cohort retention, expansion drivers; kill or scale decisions.
A 90-Day Escape Plan
Days 1–30: Run a diagnostic on ICP, funnel leaks, and payback math. Kill unprofitable channels.
Days 31–60: Rebuild messaging, reset sales process, launch referral/partner pilots, tighten onboarding.
Days 61–90: Scale only channels with payback ≤18 months and LTV:CAC ≥3:1; focus on expansion for higher NDR.
The Bottom Line
CAC isn’t just a marketing problem—it’s a system problem. When you narrow the ICP, improve conversion, lean on expansion, and enforce payback discipline, you escape the CAC trap—and grow on purpose, not by accident.
