When you are selling products and services, you are willing to pay for the cost of your sales activity with a fraction of the gross margin you are making from the sale.

It is important to keep in mind that smaller businesses need smaller solutions and lower invoices than bigger enterprises. Let’s say you are selling a software product over the phone for $50. The gross margin to be made is $25. Even if the sales transaction costs $20, you are turning a $5 profit.

If you are selling a subscription service, such as access to a cloud based SaaS platform, then you should calculate a lifetime-value for the acquired customer, since it would make sense to assume that most of customers will stay on, and there would not be another sales acquisition cost at the time of renewal.

Let’s say 80% stay the second year, 20% the third year…