a single source, nothing corroborates it

Test the business at replacement-only spend

Ask what profit would look like if sales and marketing were funded only well enough to replace the customers who cancel, and you find out whether the business is profitable or whether growth is hiding the answer. Stopping that spend is not the same as holding revenue flat, since downgrades and cancellations pull it down while upgrades push it up.

The method

1. 01

   Do not treat halting sales and marketing as equal to holding revenue flat, because cancellations and downgrades pull revenue down while upgrades push it up.

2. 02

   Test whether your business is really profitable under the growth spend by asking what profit would look like if you spent only enough on sales and marketing to replace the customers who cancel.

What it returned

• This is the first flaw he identifies in the earlier metric Rackspace used while scaling, which simply added sales and marketing back to profit.

• His formula takes earnings before interest, tax, depreciation and amortisation, adds back all sales and marketing, then subtracts the cost of replacing cancelled customers.

Sources

• SSEBITDA—A steady-state profit metric for SaaS companiesJason Cohen · longform.asmartbear.com · Two flaws in EBITDASM · 2025-04-20