Business-Math

Two companies. Same revenue. $10M ARR. Company A - Traditional SaaS: 100 customers paying $100K/year Churn: 5% annually Growth: 20% YoY Valuation: $50M (5x revenue) Company B - SaaS with Expansion: 100 customers started at $50K/year Churn: 5% annually (same as Company A) But… existing customers now paying average $120K Net Revenue Retention: 120% Growth: 35% YoY Valuation: $200M (20x revenue) Same starting point. Same number of customers. Same churn rate. ...

WhatsApp acquisition by Facebook: $19 billion. Everyone thought Zuckerberg overpaid. The numbers at the time: 55 employees $20M annual revenue Minimal profits $345 million per employee $40 per user The critics calculated: $$ \text{Revenue Multiple} = \frac{$19B}{$20M} = 950x $$ “Insane valuation! Facebook wasted billions!” But Zuckerberg saw different numbers: 450M daily active users (growing 20% annually) Network effects getting stronger WhatsApp replacing SMS globally Engagement higher than Facebook Messenger He calculated the NPV (Net Present Value) differently: ...

September 2008. Dropbox had a problem. They were spending $233-388 to acquire each customer through Google AdWords. But each customer was only worth $99 (annual subscription). LTV:CAC ratio: 0.26:1 Translation: Lose money on every customer. Most companies would: Raise prices Cut acquisition costs Pivot the business Shut down Drew Houston did something different. He built a referral program: Give 500MB for each friend who signs up Friend gets 500MB too The result? ...

October 2018. A successful SaaS company with: $10M annual revenue 20% profit margins 200 happy customers Growing 30% year-over-year Filed for bankruptcy. How? They were profitable on paper but bleeding cash in reality. The problem: They paid suppliers in 30 days Customers paid them in 90 days Meanwhile, they needed cash for payroll, servers, and growth The math was simple: For every $100 in new sales: They spent $60 upfront (servers, onboarding, support) They got paid $100 three months later Net: $40 profit… eventually But “eventually” requires cash to survive the wait. ...