Venture Capitalist at Theory

About / Categories / Subscribe / Twitter

2 minute read / Aug 21, 2020 /

Month Zero Cash-on-Cash Payback - A Metric for Judging Sales Team Growth


Rippling published their fundraising deck. Within it, Adil Syed, (a former Redpoint VC!), introduced a gem of a new metric: month zero cash-on-cash payback. It’s not a metric one sees very often in pitch decks. But it’s another metric to add to the toolkit.

Month Zero Cash-on-Cash Payback is a mouthful. Let’s dub it ZCP for Zero Cash Payback to save us from the more evident but unwieldy MZCoCP.

Where does ZCP fit into the panoply of metrics for SaaS companies? It’s a cash accounting metric, not an accrual accounting metric. The income statement or P&L is accrual accounting and recognizes revenue over the life of a contract. Cash accounting is the amount of money in the bank.

ZCP’s accrual accounting pair partner is the magic number. Both the magic number and NCP measure the efficiency of the go-to-market teams. The magic number answers the question: if we invest $1 in sales and marketing, how much new bookings can we generate?

ZCP answers the question: if we invest $1 in sales costs (e.g., salaries & sales commissions), how long does it take to recoup that dollar and see it in our bank account?

If we can pay a sales team $1 today and regain it this month, the ZCP is 1. Quoting from the deck, “The sales team can be expanded without increasing burn.” As the ZCP approaches zero, the cost of the sales team and expanding it increases until it reaches the total cost of the sales teams.

Swings in the ZCP are going to be non-linear. If the sales team overperforms and attains accelerators, commission payments will increase, and ZCP will fall. If the sales team underperforms meaningfully, cash collections will fall, but so will commissions. Other swing factors include multi-year deals with upfront payments and enterprise contracts that have delayed start dates.

This volatility means the metric is likely best used as a trailing average on a quarterly basis, rather than monthly, unless your sales team is highly consistent.

The ZCP is a metric for understanding the cash impact of growing a sales team.

Read More:

Redpoint Office Hours with Tyler McNally from Gainsight