You can evaluate your capital efficiency on re:cap using two metrics: the CAC payback period and the efficiency score. Those metrics are particularly relevant for Software-as-a-Service businesses (SaaS). But first, let’s take a step back and explore capital efficiency from a broader perspective.
What is it?
Capital efficiency measures of how effectively a business uses its capital (money or assets) to generate revenue and growth. It answers the question: “How much output do I get for every euro invested?”
- High capital efficiency: when you get a lot of revenue from a relatively small amount of capital. This is desirable because it means the company is making the most of its resources.
- Low capital efficiency: when you need a lot of capital to produce only little revenue. This can signal wasteful spending or inefficient operations.
Capital efficiency is about maximizing returns while minimizing the capital needed, leading to better profitability and sustainable growth.
CAC payback period
The CAC payback period measures sales efficiency representing the rate at which the cost spent to acquire a customer are repaid by that customer.
This metric is calculated using two components:
- Customer acquisition cost (CAC) – the total spent on marketing and sales (including staff and related expenses) divided by the number of new customers.
- Average revenue per account (ARPA) – the monthly revenue divided by the total number of customers.
The result shows how quickly each customer repays their acquisition cost, providing a clear view of your sales efficiency.
How is it calculated?
What data sources are needed?
Avg. ARPA: revenue & customers data
Avg. customer acquisition costs: accounting data & revenue & customers data
Marketing & sales expense: accounting data
- Avg. ARPA: revenue & customers data
- Avg. customer acquisition costs: accounting data & revenue & customers data
- Marketing & sales expense: accounting data
Efficiency score
The efficiency score measures how well a company uses its resources to generate revenue.
How is it calculated?
It’s calculated by dividing the net new revenue from the past three months by the average monthly burn rate for the same period. New revenue includes both additional revenue from existing customers and revenue from new customers. The average burn rate is the smoothed operating cash flow over the last 90 days, divided by three. An efficiency score of 5 means that for every euro spent, revenue increases by 5 euros.
What data sources are needed?
- Net new revenue: revenue & customers data
- Avg. monthly burn rate: bank account data
- Operating cash flow: bank account data
What does it tell me about my company?
Capital efficiency gives you insights into the financial health and operational effectiveness of your company. Here’s what it can tell you:
- Resource utilization: it shows how well your company is using its capital to generate revenue. A high capital efficiency ratio means you're getting more output from less investment, signaling effective use of resources.
- Profitability potential: it helps you understand your potential for profit. If your company can generate revenue with minimal capital, you’re more likely to be profitable and able to reinvest efficiently for growth.
- Financial discipline: it reflects your company's financial discipline. Businesses that focus on capital efficiency often focus on cutting unnecessary costs, optimizing operations, and ensuring every euro spent drives value.
- Growth scalability: capital efficiency indicates how easily your company can scale.
- Investor confidence: it can increase investor confidence. Capital-efficient companies are viewed favorably by investors because they demonstrate the ability to grow sustainably.
