Dear SaaStr: How Much of a Cash Buffer Should I Have For a “Rainy” Patch?

Q: What is the norm for a “rainy days” bank buffer, considering payroll, rent, and everything in-between?

The best rule I’ve learned in SaaS is the “50% of your ARR on the balance sheet” rule.

-> If you have > 50% of your ARR in cash, in the bank, that’s usually enough to make the key accretive investments you need to make in people, infrastructure and marketing,

If you are at $10m ARR, you need at least $5m in the bank to comfortable hire the, say, 50+ folks you’ll need to hire the next year. People aren’t cheap.

Etc. etc.

You can run it leaner. I had $2m in the bank at $10m ARR. But it wasn’t enough to protect vs. a systematic shock. A patent troll. A loss of a critical VP and part of her team. Etc. I needed 50%+ myself.

60% is even better.

The last thing you want to do in SaaS is not make accretive hires. More on that here: At About $2m in ARR, Every Great Hire Will Be Accretive. | SaaStr

(note: an updated SaaStr Classic answer)

A bit more here:

To Really Scale, You Need $1M on Your Balance Sheet for Every $2M in ARR

Published on January 21, 2022

Pin It on Pinterest

Share This