SaaS SaaS Business Models and Pricing 2

Question 1

What is Customer Acquisition Cost (CAC) in SaaS?

Accepted Answer

The total sales and marketing spend divided by the number of new customers acquired

Answer

CAC is the total sales and marketing investment divided by the number of new customers acquired in the same period, measuring efficiency of growth spend.

Question 2

What is the LTV:CAC ratio and what does a healthy ratio look like for SaaS?

Accepted Answer

Lifetime value to customer acquisition cost; a ratio of 3:1 or higher is generally considered healthy

Answer

LTV:CAC compares the lifetime value a customer generates to the cost of acquiring them; 3:1 is the widely cited benchmark indicating efficient, profitable growth.

Question 3

What is expansion revenue in a SaaS context?

Accepted Answer

Additional revenue generated from existing customers through upsells, cross-sells, or seat additions

Answer

Expansion revenue is incremental revenue from existing customers upgrading plans, adding seats, or purchasing add-ons — a high-margin growth lever that reduces reliance on new customer acquisition.

Question 4

What is a tiered pricing model in SaaS?

Accepted Answer

Offering multiple fixed packages (e.g., Starter, Pro, Enterprise) with increasing features and prices

Answer

Tiered pricing packages features into distinct plans at different price points, allowing customers to self-select the tier matching their needs and budget.

Question 5

What does 'land and expand' mean as a SaaS go-to-market strategy?

Accepted Answer

Winning an initial small deal within an organization and then growing the footprint through upsells and additional users

Answer

Land and expand starts with a small initial sale (often one team or department), then systematically grows usage and revenue within the account over time.

SaaS Practice Test

SaaS Practice Test

SaaS SaaS Business Models and Pricing 2