Dear SaaStr: We Have a $7m ARR Business But Our CAC is Way Too High. Should We Cut Marketing To The Bone?
Look don’t throw money away on sales & marketing.
- If your sales team can’t close anything, you need to part ways.
- If you are doing intiatives in marketing and they are bringing in zero customers, just stop those things.
But more often, sales and marketing is closing some deals, just not enough. So your CAC is very high, but it’s a bit murky.
But capital constraints aside, you really do want to keep doing anything that works in a start-up. Anything. You gotta put points on the board. Even if the ROI isn’t perfect.
Cutting sales and marketing to the bone is tempting when CAC feels out of control, but it’s almost always the wrong move unless you are running out of cash. Here’s why—and how you should think about this instead:
1. High CAC Is a Symptom, Not the Root Problem
If your CAC is too high, it’s likely because of one (or more) of these issues:
- Churn is too high: If customers aren’t sticking around, your CAC payback period will balloon. Fixing churn is often the fastest way to make CAC more reasonable.
- Inefficient channels: Are you spending on channels that aren’t delivering? Audit your sales and marketing spend at a channel-by-channel level. GlossGenius did this and reallocated budget to their best-performing channels, which drove efficiency and growth.
- Misalignment with your ICP: If you’re targeting the wrong customers, you’ll spend more to acquire them, and they’ll churn faster. Tighten your ICP and focus on the segments where you win most easily.
Slashing sales and marketing won’t fix these underlying problems. It’ll just starve your pipeline and make things worse.
2. Sales and Marketing Are Your Lifeline
Even if your CAC is high, sales and marketing are what keep the business alive. Cutting them to the bone is like turning off the oxygen supply. You might save money in the short term, but you’ll suffocate the business in the process.
- Lesson from SaaS Turnarounds: When SaaS companies face tough times, the best ones don’t cut sales and marketing entirely—they optimize. They focus on the most efficient channels, double down on what’s working, and cut what’s not. For example, Zoom didn’t stop spending on marketing when CAC was high—they just got better at it. But they did set a firm budget — and didn’t exceed it.
3. Reallocate Thoughtfully, Not Recklessly
I get it—you want to invest in product and dev to fix the core issues. That’s smart, but it doesn’t mean you should abandon sales and marketing. Instead, reallocate budget strategically:
- Cut the fat, not the muscle: Identify the least effective sales and marketing initiatives and cut those first. Keep the programs that are driving the most pipeline and revenue. Again, it’s usually a bit binary for startups. Some things work a bit. Most things don’t really work. Try to keep as much of the former as possible. E.g., if being at Dreamforce or Inbound or SaaStr Annual gets you customers, just not as many as you’d hoped — don’t stop. It worked.
- Shift to lower-cost channels: Can you lean more on organic growth, referrals, or content marketing? These channels often have a lower CAC and can help you maintain momentum while you invest in product. But don’t chase free channels with low absolute returns. You can waste too much time on Free stuff that doesn’t really scale. More on that here:
4. Fix the Product, But Don’t Wait for Perfection
Yes, your product needs work. But waiting months for material progress while starving sales and marketing is too risky. Instead, focus on quick wins—small improvements that can reduce churn or make the product more competitive in the short term.
- Lesson from Adobe Sign / EchoSign: At EchoSign, we faced similar challenges with limited resources. We focused on incremental improvements—like better integrations and small UX tweaks—that had an outsized impact on retention and sales. Finally, we nailed a few 10x features and growth re-accelerated. You don’t need to rebuild the whole product to make a difference.
5. How to Talk to Your Team and Board
Your team and board need to understand that this isn’t about choosing between sales/marketing and product—it’s about finding the right balance. Be transparent about the challenges and the trade-offs, but also show that you have a plan to address them.
- Actionable Insight: Present a clear strategy to your board that includes:
- A plan to optimize sales and marketing spend (e.g., cutting inefficient channels, reallocating to high-performing ones).
- A roadmap for product improvements, with a focus on quick wins that can reduce churn and improve competitiveness. The product team has to step up, too. Has to.
- Metrics to track progress, like CAC payback period, churn rate, and NRR.
Having Said That — You Can’t Spend Your Way Out of Slowing Growth
This is a different but related point. If you have enough cash runway, don’t stop sales & marketing. Just only do what works at least a little, and stick to a fixed budget.
But what I see founders with VC capital do many times is spend more when growth slows and CAC gets longer. They try to spend their way out of it, a Hail Mary to revive growth.
I’ve never seen this Hail Mary work. It doesn’t address the root causes.
Final Thoughts
Cutting sales and marketing entirely is almost never the right move. Instead, focus on optimizing what’s working, reallocating budget thoughtfully, and fixing the root causes of your high CAC.
Instead, if you have enough cash runway, set a fixed budget for sales and marketing — and do the best you can with it. Do anything that works, even barely. Whatever you can afford, but keep doing it if it works at all. Then, yes, upgrade the product because a lot of the issues are really there.
A great deep dive with Datadog’s founding CMO on how to do more with less — but not stopping — in marketing:
And more here:
