Cash Generation on Consumption for ServerVault - Case Study Example

ServerVault’s burn rate, being basically its monthly expenses, is the average of the whole period given above. The total expense for the 30 months is $54,350,000. Divided by 30 months, the burn rate is on average $1,811,670.

            For the servers of one facility, the break-even point is the point at which ServerVault would neither be incurring a loss nor earning a profit. Units beyond this point would be sold for a profit while selling below the decided number would lead to losses. Given that each facility shall be earning the one-time setup fees of $500 plus the monthly recurring hosting fees of $750 plus another $50 for value-added services, the total revenue shall be $(500+750+50=1,300). The contribution margin shall be the total revenue minus the overhead costs per unit. The overhead costs are $50,000. The break-even point is thus the total overhead costs divided by the contribution margin. This equals $(50,000/1.300=38). The break-even point is thus 38 servers. This number is important given that it determines the number of units that should be sold to earn a profit. In this case, it is 39 units or more.

            The key drivers behind cash generation on consumption for ServerVault are the security features it offers and its reliability. While the security feature is seven-layered and has thus met the U.S. Department of Defense security standards, the reliability feature results from its use of multiple internet access points. The revenue from the facility is $1,300 as a result of the two drivers. The cash consumption from the premises and the facilities installed is due to the fact that ServerVault has not reached its breakeven point. Beyond this point, the business would be profitable.