[cyrilgrislain]

Say you generate +$100 in cash. It is typically composed of customers generating +$200, and other destroying -$100. Typically you have an a) small fraction of cash-generating customers bringing in your +$200, and another b) small fraction of cash-losers explaining the -100$. The highest RoI actions are to focus on groups a) and b)

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[rexreed]

In what way would customers destroy cash? Are you mixing operating expenses with income? All customers should have some cash contribution, associated cost of service, and LTV. To say that some would net generate more cash than others is an odd way of attributing finance to individual customers. Regardless to say that 20% of customers generate 200% of cash is an odd way of looking at customer cash contribution. If you have individual costs associated with individual customers, that should be dealt with in operating margins and cost of goods / cost of service.

Maybe instead of customers that create cash vs customers that destroy cash you can think of the customers whose revenue / LTV and cash contribution is greater than their marginal operating costs vs. those customers whose LTV and cash contribution is less than the marginal operating cost. That makes more sense to me than this 20% / 200% stuff. After all what does "200%" of your cash mean anyways? Do you mean 2x cash contribution vs the money losers?

I also find it interesting that during the hyper growth cycle of startups, the revenue and cash contribution of different customer don't matter much to investors. Rather, during hypergrowth, it's just grow and acquire customers at full speed, forget about individual customer cash contribution. But when times get tight, it's not just focus on revenue, but also focus on your most cash generating customers first. This results in crazy whiplash of introducing free and low-cost plans to get early user adoption and get those growth numbers, and then later, jettisoning all those free users and low cost users since they don't positively contribute to cash or revenue. Oh yeah and also get rid of the employees too.

This sort of whiplash advice of grow-grow-grow then slow-slow-slow is part of the problem.

[cyrilgrislain]

as you say, all customers should have some cash contribution. But if you look at 'net cash', and not 'gross margin' as you seem to describe, then customers economics can take a totally different spin. As you net cash should also include cash costs such: CAC, financing costs (especially in fintech), some costs that are often in OPEX and should be in COGS (eg: Tailored developments), etc. 200% is illustrative for logic. it means 2x your net cash balance. I am sure you got the point :)