SaaS cash efficiency measures how much new revenue is created for each dollar of operating loss in a given year. To measure cash efficiency, we look at the dollar growth in revenue for the year divided by operating loss for the year. Below are the data and observations from 2024 and 2023 for SaaS companies that have gone public since October 2017.
Cash efficiency was great in 2023. In 2023, cash efficiency on median and average was $0.81 and $1.46 respectively. Those are fantastic numbers, because good SaaS companies tend to have 100%+ net dollar retention, meaning the $0.81 recurs year after year, and grows. At $0.81, your payback is a low 1.24 years, and so long as NDR is over 100%, you never lose that overall revenue.
The $0.81 and $1.46 figures exclude those companies that are profitable (20 companies in 2023), those that have no growth (4 companies in 2023), or those that were acquired between 2017 and 2023 (7 companies). That leaves 31 companies that generated an operating loss in 2023 which we measured.
2024 cash efficiency is down slightly. The median cash efficiency in 2024 was $0.75 versus 2023’s $0.81. Additionally, growth in 2024 for these companies slowed to 16% on median versus 19% in 2023. While $0.75 and 16% are still fine numbers ($0.75 cash efficiency implies a 1.5 year payback which is good), obviously you hate seeing the slowing trends for the SaaS market. We would note that partially offsetting these trends is the fact that SaaS companies spent less on sales & marketing in 2024 ($216mm on median) versus 2023 ($265mm on median).
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 only 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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