onlycfo.io · 2023-08-24 · 1015d

Cloud Unit Economics: Why High Cash-Burning Cloud Companies Might Make Sense

This article explains the unit economics foundation of SaaS companies, demonstrating why fast-growing cloud businesses can justify high cash burn through favorable long-term cash flow potential. It introduces key metrics like CAC Payback, Burn Multiple, LTV/CAC ratio, and Net Revenue Retention, arguing that understanding these metrics is critical for both operators and investors to make informed decisions.

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Metrics in this report

CAC Payback Period (B2B Enterprise)

6-24months

target

B2B Enterprise SaaS; Exceptional = 6 months, Great = 12 months, Good = 18 months, OK = 24 months

CAC Payback Period (B2B SMB)

6-18months

target

B2B SMB SaaS; Exceptional = On first purchase, Great = 6 months, Good = 12 months, OK = 18 months

CAC Payback Period (B2C)

1-12months

target

B2C SaaS; Exceptional = On first purchase, Great = 1 month, Good = 6 months, OK = 12 months

Expansion Revenue Cost Differential

33percent

average

KeyBanc survey; expansion revenue costs approximately 1/3rd that of new business revenue

Free Cash Flow Margin

30percent

target

Mature SaaS companies at scale; aspirational cloud company terminal margin

LTV/CAC Ratio

3ratio

minimum

General SaaS; floor is 3x, best-in-class companies typically achieve >6x