How to Calculate Your Target Cost Per Acquisition for LinkedIn Ads in SaaS

You're running LinkedIn ads. Someone asks: "What's your target cost per acquisition?"

If you don't have a clear answer, you're flying blind.

Here's how to calculate your target CPA and actually use it to make decisions.

Why CPA Matters

Cost Per Acquisition (CPA) tells you how much you can afford to pay for a customer while still being profitable.

Without knowing your target CPA:

• You don't know if your ads are working

• You can't make smart bidding decisions

• You'll either overpay or underspend

• You can't scale confidently

With a target CPA, you have a clear benchmark. Either your ads hit the target or they don't.

The Basic Formula

Your target CPA should be lower than your Customer Lifetime Value (LTV) by a comfortable margin.

Simple version: Target CPA = LTV ÷ 3

More conservative version: Target CPA = LTV ÷ 4 or LTV ÷ 5

Why divide by 3-5? Because you need to cover:

• Cost of goods sold

• Sales team salaries

• Customer success costs

• Operating expenses

• Profit margin

The exact ratio depends on your business model and margins.

Step 1: Calculate Your Customer Lifetime Value

If you don't know your LTV, here's how to calculate it:

For monthly subscriptions: LTV = Average Monthly Revenue × Average Customer Lifetime (in months)

Example:

• Average customer pays $200/month

• Average customer stays 24 months

• LTV = $200 × 24 = $4,800

For annual subscriptions: LTV = Annual Contract Value × Average Years as Customer

Example:

• Average annual contract is $10,000

• Average customer stays 3 years

• LTV = $10,000 × 3 = $30,000

Quick calculation if you don't have retention data: LTV = Average Deal Size × 3 (conservative estimate)

Step 2: Decide Your LTV:CAC Ratio

Different SaaS companies aim for different ratios:

3:1 ratio (aggressive growth): If your LTV is $6,000, you can spend up to $2,000 to acquire a customer.

4:1 ratio (balanced): If your LTV is $6,000, your target CPA is $1,500.

5:1 ratio (conservative/profitable): If your LTV is $6,000, your target CPA is $1,200.

Most healthy SaaS companies aim for 3:1 to 5:1. Early-stage startups might accept 2:1 while prioritizing growth. Mature companies might aim for 6:1 or higher.

Step 3: Factor in Your Close Rate

Here's where most people mess up: CPA in ads usually means cost per lead, not cost per customer.

You need to factor in how many leads actually become customers.

The formula: Target Cost Per Lead = Target CPA × Close Rate

Example:

• Target CPA (customer): $2,000

• Close rate: 20% (1 in 5 leads becomes a customer)

• Target CPL: $2,000 × 0.20 = $400

So if your target CPA is $2,000 and you close 20% of leads, you can spend up to $400 per lead and hit your target.

Real Example Walkthrough

Let's work through a complete example:

Your SaaS product:

• Average monthly subscription: $300

• Average customer lifetime: 18 months

• Close rate from demo to customer: 25%

Step 1: Calculate LTV LTV = $300 × 18 = $5,400

Step 2: Set your target CPA (using 4:1 ratio) Target CPA = $5,400 ÷ 4 = $1,350

Step 3: Calculate your target cost per lead Target CPL = $1,350 × 0.25 = $337.50

Your benchmarks:

• Target cost per customer: $1,350

• Target cost per lead: $337.50

If LinkedIn ads are generating leads for $300, you're profitable. If leads cost $500, you're losing money.

What If You Have Different Customer Tiers?

Many SaaS companies have multiple pricing tiers with different LTVs.

Option 1: Use your average LTV Calculate the weighted average based on customer distribution.

Option 2: Create separate targets for each tier Run separate campaigns for different customer segments with different CPA targets.

Example:

• Small business plan: LTV $3,000, target CPL $200

• Mid-market plan: LTV $15,000, target CPL $1,000

• Enterprise plan: LTV $60,000, target CPL $4,000

This lets you bid more aggressively for high-value customers.

Common Mistakes to Avoid

Mistake #1: Forgetting about CAC payback period

Even if your LTV:CAC ratio is great, you might run out of cash if payback takes 18 months.

Better approach: Factor in how quickly you need to recover the acquisition cost.

Mistake #2: Not tracking customers back to source

You're calculating cost per lead, but not tracking which leads became customers. So you don't actually know your true CPA.

Better approach: Track every lead's journey from ad click to closed customer. Use CRM tags.

Mistake #3: Using the same target for all channels

LinkedIn might have higher CPAs than Google Ads, but LinkedIn leads might close at 30% vs. 15%. The true CPA might be similar.

Better approach: Calculate target CPA separately for each channel based on that channel's conversion rates.

Mistake #4: Not adjusting for sales cycle length

If your sales cycle is 6 months, you won't know your actual CPA for 6 months. Plan accordingly.

Better approach: Use leading indicators (cost per demo, cost per qualified lead) while waiting for final CPA data.

How to Use Your Target CPA

Once you know your target, use it for:

Bidding strategy: If your target CPL is $300, set your LinkedIn bids to achieve that (usually 1.5-2x your target CPL in the beginning).

Campaign evaluation: Any campaign consistently over your target CPL gets paused or optimized.

Budget allocation: Campaigns below your target CPL get more budget. Campaigns above it get less.

Testing decisions: You can test aggressive tactics if you think they'll lower CPA. If not, stick with what works.

When to Adjust Your Target CPA

Your target CPA isn't set in stone. Adjust it when:

Your pricing changes: Higher prices = higher LTV = higher target CPA Your retention improves: Customers staying longer = higher LTV = higher target CPA Your close rate improves: Better sales process = can pay more per lead Your margins change: If operating costs decrease, you can spend more on acquisition Market conditions shift: Sometimes you need to be more aggressive to compete

The Bottom Line

Your target CPA is: (LTV ÷ desired ratio) × close rate

Calculate it based on your actual numbers. Use it to evaluate every campaign. Adjust it as your business evolves.

Stop guessing. Start measuring.

Need help hitting your target CPA? Stirling generates ad variations designed to lower your cost per lead while maintaining quality, helping you achieve your target CPA faster. Try it at TryStirling.com