The definition. Contribution is generally defined as the aggregate ARR from an annual cohort at the end of a given fiscal year, less the estimated associated cost of revenue and estimated allocated sales and marketing expense.
For Sumo, at the end of fiscal 2019, the 2018 cohort accounted for $14.6 million in ARR and $7.6 million in associated costs, representing a contribution of $7.0 million, or a contribution margin of 48%. At the end of fiscal 2020, the 2018 cohort accounted for $18.3 million in ARR and $8.2 million in associated costs, representing a contribution of $10.1 million, or a contribution margin of 55%.
Payback is fast. According to Bill.com, “for customers acquired during fiscal 2018, the average payback period was approximately five quarters.” Good SaaS businesses recover the cost of acquiring the customer within 1.5 years.
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