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by msdos
3674 days ago
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> The math is a little fuzzy The math is off, mathattack. Growing by $5m a year on $100M (5%) doesn't mean you'll grow by $25m a year on $120M (20.8%). You make the good point though that raising the growth rate from 5% to 6% would make a difference. |
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But the idea is that $95M of the costs are fixed, so whatever you add goes to growth. So on 100M of revenue you have 5M to invest in growth, which will get you a 5M revenue stream the next year. On 120M you have 25M to invest.
This sounds far-fetched for traditional businesses, but isn't so off for SaaS companies. Once you get through sales, general and administration and fixed R&D costs, the margins on great SaaS companies is very high. It can be 80 or 90%. This is why GAAP metrics can look bad on them for a while (have to get over the fixed cost hurdle, and sales costs can be very high) but once you're profitable, it's a huge cash cow. This is one reason why Salesforce and Bloomberg do so well. They make tons of cash, and any competitor will need to lose money for several years to catch them.