Cash efficiency measures how much new revenue is created for each dollar of operating loss in any given year. To measure cash efficiency in SaaS, we look at the change in revenue for the year divided by operating loss for the year. Below are the data and observations from 2024 annual filings for the 63 SaaS companies that have gone public since October 2017 (and are still public; some sold and went private, like UserTesting).
Cash efficiency was good in 2024, better in 2023. In 2023, these companies on median generated $0.81 of new revenue for every $1 of loss, whereas the figure dipped slightly in 2024. Still, those are fantastic numbers, because good SaaS companies tend to have 100%+ net dollar retention, meaning the $0.75 recurs year after year, and grows. At $0.75, your payback is a low 1.50 years, and so long as NDR is over 100%, you never lose that overall revenue. Note however, at $0.81, the payback period was 1.24 years, so small moves in cash efficiency can materially impact payback periods.
Excludes ‘profitable’ and ‘no growth’. The figures exclude those companies that are profitable (21 companies in 2024), have no growth (5 companies), or were acquired between 2017 and 2023 (11 companies). That leaves 26 companies that generated an operating loss in 2024 which we can then measure.
The cost of profitability. The cost of profitability is the growth you forego by not burning cash. In this case, the profitable companies had median growth of 9%, which is pretty ho-hum. Those that burned cash and had $0.75 cash efficiency grew at a rate of 22% YOY on median. That’s a very large difference, and when compounded over many years with 100% net dollar retention is even more meaningful.
The lesson in our view is that some level of cash burn is good and even valuable when it means accelerated growth, so long as you’re cash efficient. Stay in the ~$0.75 cent range and you’ll be in very good company.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.
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