Sam Jacobs

You compare that to what you're spending on sales and marketing.

And obviously, again, this is not rocket science.

And nevertheless, many people don't do these calculations.

So let's say you're spending...

$8,000 on sales and marketing in January, and you get $8,000 back from customers on average in February, you've got a very good business there.

Because you spent a dollar, you get a dollar back.

Then everything that happens after that, their subsequent renewal periods, all of that is free cash flow that contributes to your operating expenses.

So what would be a bad situation?

A bad situation would be you spend $20,000 to acquire a customer that contributes $5,000 in gross margin contribution.

then it's going to take you four of those periods to get paid back.

And again, hopefully this isn't life-changing information, but why is it bad?

Why is it bad to be paid back over a longer period of time?

The first is it ties up your capital in that sales cycle.

So it's bad for your balance sheet,

But it also requires a much higher predictability and point of view on what's going to happen in the future.

So imagine that you have a three year payback period.

What that means is you put a dollar in at the top of the machine in 2021 and you don't get that full dollar back until 2024.

Well, has the world changed from 21 to 24?

I would think we would all agree it's changed a lot.

So the other problem with long payback periods is it requires a point of view on the future in a world that is increasingly uncertain.