In the first part of our Cloud Quarterly report series, we talked about how the market has shifted to valuing cloud companies' profitability even when it comes at the expense of growth
Cloud executives can track a lot of efficiency metrics to get a better view of their economics. Sales and marketing efficiency metrics such as LTV-to-CAC, CAC payback and the magic number are mainstays in board decks. Burn multiple is a way of looking at burn versus ARR growth.
The problem with these efficiency metrics is that they aren't actionable for your employees. It is hard for employees to execute against these concepts because they feel like financial metrics.
Improvements in product can have a big impact on sales efficiency, but they are not something that can feel top of mind. The emphasis on having less bad burn is what Burn multiple is about.
It is still imperative to be the winner in your market.
We have advice for cloud CEOs. At your next all-hands meeting, or during your next one-on-ones with functional leaders, make sure your team is aligned around ARR per employee.
As you navigate these volatile times, we think APE is a good metric to use.
People drive the cost structure of cloud companies. Cloud expenses, real estate, and spending on other applications are some of the other costs you should be aware of. Around 70% of your costs are related to your employees. The employee base is the place to start if you want to make your business more efficient.
Maximizing your employee base should be done through smart, measured hiring, not a reduction in force. The latter will be avoided if you achieve the former. A PE can be used to instill hiring discipline in your organization.
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