After the trough, how will the profitability of the enterprise be over time?
Another important insight this model shows us is the value of offering incentives to customers to get them to pay upfront. This is most valuable early in the cash flow trough.
This post provides a model for SaaS entrepreneurs with these charts showing the cash flow troughs that occur in SaaS or other subscriptionrecurring revenue businesses that use a sales organization. These types philippines mobile database of SaaS businesses face cash flow issues early on because they have to invest in sales and marketing expenses upfront to acquire customers and only get paid from those customers over a delayed period of time. I call this phenomenon the SaaS Cash Flow Trough. The model also compares the cash flow of a business that charges monthly to the cash flow of a business that is able to pay customers upfront for a year.
Where this applies
This model works for any recurring revenue business that uses a sales force.
This model does not work for SaaS businesses that do not use a sales force. I call these businesses “touchless conversions” because there is no sales contact involved. These businesses typically have much lower investments in sales and marketing expenses and become cash flow positive much earlier.
Let’s go through Facebook’s target audience criteria.