To an unsophisticated investor, these losses can be very alarming. However, this chart also shows something very important about SaaS businesses, which is that once you get past the SaaS cash flow trough, the profitability of the sales investment starts to soar. This chart is key to understanding the economics of a SaaS business.
In Part 2 of this blog series, I will look at how adding salespeople multiple salespeople per month impacts this trough. I will also look at the impact of collecting payments a year early on cash flow.
Starting assumptions:
SaaS-Cash-Flow-Trough4
This shows the input variables used to drive the model. The philippines mobile database orange cells are input cells and can be changed to reflect your own situation.
Note the sales attrition factor, which discounts bookings by 15% to account for failed sales hires and departing salespeople. It is common to hear 30% sales attrition. However, since failed salespeople will still make some level of bookings, I would guess that 15% is taken into account.
Marketing Funnel Economics
The next piece of the puzzle we need to understand is how marketing costs increase as we add more salespeople. Let’s first look at a hypothetical marketing funnel.