How B2B buy now, pay later solves the CAC vs ACV conundrum

Jonah Remz
Jonah Remz
Head of Finance
Posted on
June 13, 2023
min read
How B2B buy now, pay later solves the CAC vs ACV conundrum

Trying to achieve a high ACV (annual contract value) and a low CAC (customer acquisition cost) simultaneously has long been the holy grail of financial success in the B2B SaaS industry. Having both would mean that a B2B SaaS startup could scale quickly and efficiently without needing to burn through as much cash from outside investors.

However, like the holy grail, it’s incredibly elusive. Typically, a high ACV means a high CAC because customers who are willing to pay a high-value contract upfront aren’t very plentiful, and they need much more nurturing to close the deal. On the other hand, a low CAC usually correlates with a low ACV, because the only customers who are easy to convert are typically looking for low-value contracts.

In most cases, B2B SaaS startups are forced to compromise and pick one over the other. But that doesn’t mean it’s impossible to achieve both. Keep reading to learn the pitfalls of choosing one over the other, and how a B2B buy now, pay later solution can help SaaS businesses achieve both a high ACV and a low CAC.

What is ACV and CAC in SaaS—and why should I care?

If you’re unfamiliar with ACV and CAC, here’s a brief overview.

What is ACV in SaaS?

ACV, or annual contract value, is a metric that measures the average value of a customer's annual contract with a SaaS vendor. It can be calculated with the following formula:

Total contract value/ total years in contract = ACV

If a customer has a contract that spans less than a year, you can calculate an approximate ACV by multiplying their average monthly contract value by 12.

ACV is usually used to calculate a single customer’s contract value, but you can also calculate the average ACV across all your customers. The second option gives a more holistic view of the overall revenue potential and health of your business, while the first option gives you insights into the potential of each individual customer relationship. 

While ACV is a great metric to gain insight into your annualized revenue, it can also be deceptive if calculated improperly, or if you view it in a vacuum. For example, failing to factor in churn rates, discounts, or extra costs like set-up fees in your analysis of your ACV can paint an unrealistic picture of your cash flow and customer relationships. Creating an average ACV when you offer many different kinds of contracts can also require making too many assumptions to be accurate. 

What is CAC in SaaS?

CAC, or customer acquisition cost, measures the financial investment required to acquire a new customer. It can be calculated by totaling the sales and marketing expenses incurred to convert a prospect into a paying customer. 

Total marketing + sales + miscellaneous expenses spent to convert a specific customer = CAC

Like ACV, CAC can be used to assess a single customer, or it can be used as an average figure across all your customers. It’s important for maintaining a sustainable and profitable customer acquisition strategy that brings in more money than it spends.

Total marketing + sales + miscellaneous expenses spent on customer acquisition in a specific period / number of new customers in that period = Average CAC

CAC is often more complicated than it looks. It can be difficult to tease out the precise spend associated with each customer if you haven’t been tracking it meticulously. It can also be difficult to assess what counts as customer acquisition spend. The costs associated with acquiring different customers can also vary significantly, leading to an average CAC that might not accurately represent the true cost of acquiring customers with a higher lifetime value.

The challenge of balancing CAC and ACV for B2B SaaS startups

Finding the right balance between CAC and ACV can be a challenge. The two metrics inherently oppose each other, and most B2B SaaS startups deal with this by focusing on one over the other. Here’s what you lose out on depending on whether you choose to focus on CAC or ACV.

Drawbacks of focusing on lowering your CAC

Focusing primarily on lowering CAC can lead to several drawbacks that hinder your overall business performance. 

Decreased ACV

A CAC-focused strategy often involves targeting low-value contracts or offering discounts to entice buyers into committing to high-value long-term contracts. By creating a softer upfront financial commitment with discounts or short-term contracts, B2B SaaS startups can get more customers at a lower cost. However, since the customers are signing on for lower-value contracts, this automatically decreases ACV. 

Depleted customer lifetime value (LTV)

Emphasizing low CAC tends to attract customers with less money to spend overall. They also tend to view your product as more disposable, since it didn’t involve a large financial commitment to procure. This means that customers with a low CAC are more likely to churn, cancel their subscriptions, or decline renewals or upsells, which decreases their overall LTV. 

Negative impact on brand reputation

Since low CAC typically means a less expensive product or heavy discounts, this can inadvertently create a perception that your product or service is of low value. Customers may associate the low price with a lower-quality offering, which can impact the brand's reputation and hinder your ability to command higher prices in the future. This is especially an issue when your low CAC is the result of discounts rather than a low total product cost. 

A smaller pool of customers

Although it may seem counterintuitive, focusing on offering your products or services at a lower price can limit your potential customer pool. If you target customers who are willing to pay low prices or agree to short-term contracts, you may miss the opportunity to target customers who can afford longer, more expensive contracts. And even if these customers do know about your product, they may not view it as a good fit if it’s only available at low prices. This can restrict your long-term growth potential.

Drawbacks of focusing on increasing your ACV

Focusing solely on increasing ACV can also create unintended negative consequences for B2B SaaS startups. Here are a few of the most notable ones.

Higher CAC

Because high ACV customers are more challenging to convert, pursuing high ACV contracts often requires substantial investment in marketing, sales, and personalized customer engagement. The resources and time required to close these complex deals contribute to a higher CAC, which impacts profitability.

A smaller customer pool

Just like focusing on a low CAC can limit your pool of potential customers, so can focusing on a high ACV. By only focusing on customers and deals that can afford your high-value long-term contracts, you drastically limit your audience. Many customers who would be a good fit aside from the fact that they can’t afford your high-value contract are cut out, which can reduce sales opportunities and your business’s potential for growth and expansion.

Longer sales cycles

Converting higher-value deals often involve more complex decision-making processes, requiring more time and effort to nurture potential customers before they convert. SaaS sales cycles for high-value contracts can take weeks or months, and require talking to many different stakeholders and trying many different marketing tactics. These prolonged sales cycles can delay revenue generation and require costly additional resources to maintain engagement throughout the entire process. 

Decreased customer diversification

Focusing on a high ACV can result in relying on a small collection of incredibly high-value customers to secure your revenue. This leaves your business incredibly vulnerable to revenue fluctuation and financial instability if things suddenly change, such as if a customer decides to cancel their contract. And, since the sales process is much more complex and long for high-value contracts, it can be extremely difficult to replace a customer who leaves within the timeframe necessary to make up for the loss. 

Increased pressure to satisfy

Offering higher-priced products or services puts additional pressure on startups to deliver exceptional value and meet elevated customer expectations. Customers investing in high-value contracts expect a premium experience and results that justify the higher price. If the product falls short of expectations or fails to deliver the promised value, customer satisfaction can decline, leading to potential churn and negative word-of-mouth.

How B2B buy now, pay later can achieve the best of both worlds

So how can B2B SaaS startups strike the right balance between these two metrics? Is it necessary to always choose one while sacrificing the other? 

Achieving both a high ACV and a low CAC is possible, but only with some creative problem-solving skills. You need to figure out a way to make high-value contracts seem more attainable, without sacrificing your pricing. One of the best ways to do this is by using a B2B buy now, pay later solution.

Like its B2C counterparts, a B2B buy now, pay later (or BNPL) solution is a type of installment loan that allows B2B SaaS vendors to get the full value of a contract upfront, while the buyer gets to pay in flexible installments. 

The power of this solution is that it allows SaaS vendors to offer long-term, high-value contracts at a lower price, which can shorten sales cycles, broaden your pool of potential customers, and have the overall effect of decreasing CAC while increasing ACV. Here’s a breakdown of some of the main benefits B2B buy now, pay later provides.

Decrease CAC with shortened sales cycles

Since B2B BNPL decreases the upfront financial commitment of a contract, it can accelerate the decision-making process for buyers, resulting in shorter nurturing periods, a more streamlined conversion process, and less time and money spent on sales and marketing. This means it can decrease your CAC and shorten your sales cycles without requiring a cut in revenue.  

Expand your potential customer pool and increase customer diversification 

B2B buy now, pay later can help you attract both high-value buyers who can afford to make large upfront payments and smaller buyers who can only afford your product through the use of BNPL. This helps you increase and diversify your overall potential customer pool, so you don’t end up over-relying on a few large buyers. 

Increase LTV and decrease churn

B2B BNPL’s affordability makes it easier for customers to renew their contracts and accept upsells, leading to improved contract renewal rates, decreased churn, and overall LTV. Focusing on long-term contracts can also help you attract more serious customers who are inherently less prone to churn. 

Maintain brand reputation and accessibility 

Because it allows SaaS vendors to offer their products at a lower upfront cost without reducing the actual total price, B2B buy now pay later can help you maintain brand perception while expanding market accessibility to buyers with less cash on hand.

Increase ACV on all contracts

With B2B BNPL, even customers who opt for smaller installment payments are still committing to high-value long-term contracts with a high ACV. This helps you increase your average ACV and move away from short-term, low ACV contracts, without increasing the upfront affordability of your product. 

Get started using B2B buy now, pay later with Capchase Pay

Traditionally, balancing CAC and ACV has involved sacrificing one or the other. B2B buy now, pay later offers a solution that allows the benefits of a high ACV and a low CAC, without any of the downsides.

Capchase Pay is one B2B buy now, pay later solution built specifically for the B2B SaaS industry. Built to handle large transactions and flexible terms, Capchase Pay can integrate directly your existing CRM and cause minimal disruptions in your sales process. It also handles all your billing and collections for you, solving another bottleneck to your team’s time and resources.

By leveraging Capchase Pay, B2B SaaS startups and established businesses alike can increase their ACV while lowering their CAC through a shorter, more streamlined sales process. Early adopters of Capchase Pay have reported impressive results, including a 300% increase in sales velocity, an 80% increase in lifetime value, and a 20% annual contract value increase on average. For instance, lead generation company CIENCE has used Capchase Pay to halve its sales cycles and generate $3.7 million in pipeline in just 1 month.  

To get started with Capchase Pay, get in touch with our team, or visit our website for more information.