SaaS Talk™ with the Metrics Brothers - Strategies, Insights, & Metrics for B2B SaaS Executive Leaders Free Cash Flow - A Deep Dive
Sep 18, 2024
In this insightful discussion, Dave Kellogg, a SaaS investment guru, and Ray Rike, a growth strategies expert, unravel the vital concept of Free Cash Flow (FCF). They delve into how FCF serves as a benchmark for measuring company performance and its crucial integration with the Rule of 40. The duo breaks down various calculation methods, exploring the impact of capitalizing sales commissions and R&D. FCF emerges as a pivotal metric not just for B2B SaaS firms, but for investors navigating a maturing industry.
AI Snips
Chapters
Transcript
Episode notes
Rule of 40 and FCF Margin
- Free cash flow margin is becoming the most common profit metric within the Rule of 40.
- The Rule of 40 balances growth and profit metrics, and a 40 is the target.
Importance of Free Cash Flow
- Free cash flow is important because it represents cash left for investments, debt repayment, or dividends.
- It's crucial because companies can go bankrupt despite profits if they run out of cash.
Michael Dell's Cash Flow Analogy
- Michael Dell admitted Dell's troubles stemmed from focusing on the P&L and not cash flow.
- He compared it to driving while only watching the speedometer, ignoring the fuel gauge.