2023 SaaS Cash Efficiency relative to Growth

To measure cash efficiency in SaaS, we look at the change in revenue for the year divided by operating loss for the year.? Cash efficiency measures how much new revenue is created for each dollar of operating loss in any given year.? Below are the data and observations from 2023 annual filings for the 62 SaaS companies that have gone public since October 2017 (and are still public; some sold and went private, like UserTesting).? ??

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Cash efficiency was great in 2023.? In 2023, these 62 companies on median and average generated $0.81 and $1.46 of new revenue for every $1 of loss.? 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.?

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Excludes ‘profitable’ and ‘no growth’.? The $0.81 and $1.46 figures exclude those companies that are profitable (20 companies), have no growth (4 companies), or were acquired between 2017 and 2023 (7 companies).? That leaves 31 companies that generated an operating loss in 2023 which we can then measure.

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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 13%, which is pretty ho-hum.? Those that burned cash and had $0.81 cash efficiency grew at a rate of 23% YOY on median.? That’s a very large difference, and when compounded over many years with 100% net dollar retention is even more meaningful.?

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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 ~$0.81 cent range and you’ll be in very good company.??? ?????

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