The ease and affordability of software as a service (SasS) solutions in recent years, added to the sudden global need to work from home in 2020 and 2021, means that we’re set for another decade of exciting momentum in the SaaS vertical. Gartner predict that the total worldwide cloud services market share could grow 15.58% in 2021 to $120.1 billion up from $104.7 billion in 2020. A key component of any growing SaaS company will be the finance function; a team or individual that will be relied upon to take the pulse of the organization at any given time.
As a finance leader, one of your responsibilities is to deliver visibility on key SaaS metrics that potential and existing investors will want to see in order to accurately monitor the growth of your business.
By setting up accurate dashboards in your core financials software to give you an ‘always on’ view of your SaaS company’s vital statistics, you can prove to stakeholders that your growth trajectory is on target while simultaneously accessing real-time data that lets your team stay agile.
Here are five SaaS metrics that every organization should closely monitor during their growth journey.
1. Cashflow and cash management
Even if your fledgling business is fortunate enough to be well funded, it’s critical to know your cash levels at all times. You’ll need money for day-to-day operating expenses as well as to invest in your ambitious growth strategies, but as most new SaaS companies might not yet have a fully-staffed finance department, or in some cases even a designated CFO, you will need to rely on finance technology that can scale with your business.
2. Gross Margin
Perhaps the simplest metric for all businesses to remember is gross margin. Gross margin is a company’s net sales revenue minus its cost of goods sold (COGS). A higher margin means a higher profit and the ability to grow this number year over a year is very appealing to potential investors.
3. Keep an eye on Churn
It’s so exciting for a growing SaaS business to see its subscriber base grow every month, but every CFO worth their salt will know that acquiring customers is only the start of the journey and retention is the name of the game. The churn rate, also known as the rate of attrition, is how quickly a customer stops doing business with you. In the subscription era, people are more aware of churn because we are now in a world of micro monthly payments, with 12 opportunities for customers to churn, not just once a year. Your investors will be very interested to see how long your customers say engaged with your services or if they just subscribe to access one component then churn and most importantly, what strategy you have in place to retain them.
4. CAC and CAC payback
What does it cost you to get a customer? What does it cost you to keep a customer? When do you see a return on this investment? These are three questions that can provide proof of a viable and sustainable business model. While customer acquisition cost (CAC) is easily to calculate, CAC payback is a little more complicated.
To calculate the CAC payback period, you need three other metrics:
-Customer acquisition cost CAC
-Average revenue per account
-Gross margin percent
To get the number of months it takes to recover CAC, divide the customer acquisition cost by average revenue per account, multiplied by gross margin percent.
Growing companies often aim to achieve CAC payback within 12 months, while established subscription-based companies with a refined CAC payback strategy can achieve this in five to seven months.
5. Changes in CMMR
CMMR refers to Committed Monthly Recurring Revenue. For term-based subscription businesses, this is the portion of subscription revenue that is recorded each month by the business. By keeping an eye on a net change in this number while also performing stress tests to see how your business would survive with a drop in committed or contracted revenue you can see if your business is overly reliant on one client or in one geography etc.
Every SaaS organization faces unique challenges, but all have a universal need for accurate financial data management. Take a free Coffee Break Demo of Sage Intacct and learn more about what Sage Intacct can do for your business.
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