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I forget which podcast I heard it on (so forgive me if my memory is sloppy), but after their latest quarterly report didn't CAC payback go from 24 months to som

by corry 4y ago

I forget which podcast I heard it on (so forgive me if my memory is sloppy), but after their latest quarterly report didn't CAC payback go from 24 months to something wild like 10 years? Meaning their new ARR add rapidly fell off so quickly, before they adjusted their Sales and Marketing salaries and spending, that it immediately put their unit economics way way way way underwater. So I'd expect at least a big chunk would be S&M cuts, even through of course you still need salespeople. 10% of a 75k company is still 7k people. From the King of SaaS. Wild times.

pryelluw 4y ago
It’s rather amusing, in a dark sense, that Salesforce is about to lay off part of their sales force.
triceratops 4y ago
CAC = Customer Acquisition Cost ARR = Annual Recurring Revenue S&M = Sales and Marketing Is that right?
- s1mon 4y ago
  In San Francisco, "S&M" usually has a different meaning. It's not like Folsom Street Fair and Dreamforce aren't often around the same weekend.
  - hestefisk 4y ago
    Potato, potato
- awillen 4y ago
  Yes.
grantsch 4y ago
Many many software companies end up spending more money to acquire a customer than a customer will ever pay them. I tend to think this is because the demand and need for many tools is not significant enough to justify the amount of capital allocated to promote them. Finance spreadsheet alchemists last 10 years saw big gross margins in software (overinflated by not taking into account cost to acquire user), bought into long-term incumbent dominance narrative from founders, and now they're stuck with companies that are willing to spend 10x+ lifetime customer value to acquire a user. Everyone with a vested interest in these companies/investments always seems to say the real returns are 10 years+ once they are in a dominant position in their industry and have monopolistic pricing power. How are we supposed to know what happens in 5 years, let alone 10+? Seems like a big carnival trick to me. What's interesting is that this mentality is so engrained that the people promoting it don't seem to even get that they're in on an act. You could have the best tool on the planet, but if the cost to distribute it is greater than what those customers acquired will ultimately pay you, you don't have a company.
- SpicyLemonZest 4y ago
  The general attitude I've encountered is that you do this as a whale hunting strategy, developing a reputation for passionate overinvestment in your customers because the kind of people who sign eight or nine digit contracts demand it. I don't have the right data to know whether it always works, but multiple times I've seen it produce big deals that would never have come together otherwise.
  - grantsch 4y ago
    Yes that would be one way to justify to others spending more on acquiring customers than they pay you.
- corry 4y ago
  I get where you're coming from, but since the dawn of SaaS we've had rules of thumb about LTV-to-CAC, CAC payback period, etc. Most SaaS founders know that a 3:1 ratio between LTV and CAC is ideal - and while arguments might hold water that a worse ratio is OK for a brief period, I don't think anyone involved doesn't realize that it's difficult to sustain that. The mental magic trick to justify it probably goes like this - "Yes, we're underwater on the LTV-CAC ratio for now, but once we're in position XYZ we'll be able to launch new products ABC and increase LTV from there". Which isn't wrong. And the new CAC to upsell product ABC to existing clients is going to be very low. So in a sense, you CAN justify (at least in a 'superficially prudent way') a worse ratio with that argument. And ironically, Salesforce is a GREAT example of this WORKING (up until now?). They have ruthlessly increased ACV and LTV for decades, through increases to pricing, growing features, launching new products, creating the app ecosystem, etc.
  - grantsch 4y ago
    Why does real LTV have to be greater than CAC. Can you explain that to me? If you’re LTV is actually higher than LTV can’t you finance the difference?
    - corry 4y ago
moneywoes 4y ago
Would love that podcast if you’re familiar
- ghiculescu 4y ago
  I think it was in https://open.spotify.com/episode/75monukXnzL7qRlKVMrIpO?si=fAefrE52RSOR5bPpPD8agA https://open.spotify.com/episode/75monukXnzL7qRlKVMrIpO?si=f... towards the end. Here’s a summary https://twitter.com/davidsacks/status/1598076726671642624?lang=en https://twitter.com/davidsacks/status/1598076726671642624?la...
  - corry 4y ago
    Yes I think so! Thanks
bcrosby95 4y ago
I don't know. As an anecdote, my friend has worked at salesforce in a technical capacity for the past 10 years, and their team was cut from 15 down to 10 today. I'm not sure on the seniority of the people laid off.

by corry 4y ago

pryelluw 4y ago

It’s rather amusing, in a dark sense, that Salesforce is about to lay off part of their sales force.

triceratops 4y ago

CAC = Customer Acquisition Cost ARR = Annual Recurring Revenue S&M = Sales and Marketing Is that right?

s1mon 4y ago
In San Francisco, "S&M" usually has a different meaning. It's not like Folsom Street Fair and Dreamforce aren't often around the same weekend.
- hestefisk 4y ago
  Potato, potato
awillen 4y ago
Yes.

grantsch 4y ago

Many many software companies end up spending more money to acquire a customer than a customer will ever pay them. I tend to think this is because the demand and need for many tools is not significant enough to justify the amount of capital allocated to promote them. Finance spreadsheet alchemists last 10 years saw big gross margins in software (overinflated by not taking into account cost to acquire user), bought into long-term incumbent dominance narrative from founders, and now they're stuck with companies that are willing to spend 10x+ lifetime customer value to acquire a user. Everyone with a vested interest in these companies/investments always seems to say the real returns are 10 years+ once they are in a dominant position in their industry and have monopolistic pricing power. How are we supposed to know what happens in 5 years, let alone 10+? Seems like a big carnival trick to me. What's interesting is that this mentality is so engrained that the people promoting it don't seem to even get that they're in on an act. You could have the best tool on the planet, but if the cost to distribute it is greater than what those customers acquired will ultimately pay you, you don't have a company.

SpicyLemonZest 4y ago
The general attitude I've encountered is that you do this as a whale hunting strategy, developing a reputation for passionate overinvestment in your customers because the kind of people who sign eight or nine digit contracts demand it. I don't have the right data to know whether it always works, but multiple times I've seen it produce big deals that would never have come together otherwise.
- grantsch 4y ago
  Yes that would be one way to justify to others spending more on acquiring customers than they pay you.
corry 4y ago
I get where you're coming from, but since the dawn of SaaS we've had rules of thumb about LTV-to-CAC, CAC payback period, etc. Most SaaS founders know that a 3:1 ratio between LTV and CAC is ideal - and while arguments might hold water that a worse ratio is OK for a brief period, I don't think anyone involved doesn't realize that it's difficult to sustain that. The mental magic trick to justify it probably goes like this - "Yes, we're underwater on the LTV-CAC ratio for now, but once we're in position XYZ we'll be able to launch new products ABC and increase LTV from there". Which isn't wrong. And the new CAC to upsell product ABC to existing clients is going to be very low. So in a sense, you CAN justify (at least in a 'superficially prudent way') a worse ratio with that argument. And ironically, Salesforce is a GREAT example of this WORKING (up until now?). They have ruthlessly increased ACV and LTV for decades, through increases to pricing, growing features, launching new products, creating the app ecosystem, etc.
- grantsch 4y ago
  Why does real LTV have to be greater than CAC. Can you explain that to me? If you’re LTV is actually higher than LTV can’t you finance the difference?
  - corry 4y ago

moneywoes 4y ago

Would love that podcast if you’re familiar

ghiculescu 4y ago
I think it was in https://open.spotify.com/episode/75monukXnzL7qRlKVMrIpO?si=fAefrE52RSOR5bPpPD8agA https://open.spotify.com/episode/75monukXnzL7qRlKVMrIpO?si=f... towards the end. Here’s a summary https://twitter.com/davidsacks/status/1598076726671642624?lang=en https://twitter.com/davidsacks/status/1598076726671642624?la...
- corry 4y ago
  Yes I think so! Thanks

bcrosby95 4y ago

I don't know. As an anecdote, my friend has worked at salesforce in a technical capacity for the past 10 years, and their team was cut from 15 down to 10 today. I'm not sure on the seniority of the people laid off.