Companies are continually striving to improve their performance and it is important to know how you stack up to your peers. As FinOps takes a bigger role in charting the growth of a SaaS company, what are the benchmarks for what to do, and when? Sage Intacct, The SaaS CFO, and RevOps Squared conducted research throughout Summer 2021 to benchmark how recurring revenue companies managed the financial reporting process.
More than 250 companies participated across a wide spectrum of company sizes, annual contract values, industry segments and geographic locations. Participant profiles included C-Level executives, Senior Vice Presidents, Vice Presidents, and Director level roles. Further, the research covered a wide variety of financial process responsibilities and activities including reporting, financial close, performance metrics calculations, and their related resource utilization – primarily time based. Our goal was to identify process optimization to scale a company that you could leverage in building your people, processes, and technology.
Before we dive into the survey data and the key takeaways, here are a couple important recommendations and actions for all growing SaaS companies…
- What Metrics Do You Need, By Stage? This article shows you the 6 Cs of SaaS Finance and what good/better/best looks like.
- Go Through the SaaS Finops Tech Stack Checklist. Based on 200+ customer interviews, we have built a checklist to use in planning your tech stack.
- Build Your Finance Tech Components in One Stack. This article shows the components of the SaaS FinOps Tech Stack. Consider how to have the data flow across these components.
- Automate Financial Processes Early. The graphic below shows the timing of what processes to evolve, and when.
Now let’s dive into the data and our 8 key takeaways. We’ve broken these into two sections, with four findings each:
Section 1: Reporting Requirements Should Drive Process and Technology Stack
FINDING #1 – SaaS Metrics are Calculated Inconsistently
Many of the top enterprise value impacting metrics, including Net Dollar Retention, CAC Payback Period and CLTV: CAC Ratio are only calculated 50% – 75% of the time. Other, financial statement critical measurements, including EBITDA and Gross Margin are only being calculated 75% – 88% of the time. A majority of companies below $5M in revenue calculate gross margin, while their larger peers tend to focus on customer churn and retention rates. Nearly 20% of the entire group calculate their metrics four times or less each year. With 65% of companies either having or planning Usage Based Pricing, having a tightly integrated billing platform and financial platform will become table stakes for financial process management and reporting.
FINDING #2 – Metrics Calculation is Primarily a Manual Process
75% of participants identified a manual process using spreadsheets was a primary source of performance metrics calculations. Only companies with more than a billion dollars in revenue relied more on an automated FP&A platform than manual processes. When factoring in fragmentation of source data as a top challenge for SaaS metrics calculations, deploying an integrated, centralized environment is imperative.
FINDING #3 – Fragmented Data Sources Create Process Challenges
The largest financial close process challenge was the fragmentation of data sources required for financial reporting. The same challenge was highlighted for performance metrics creation. This, coupled with the dominance of manual processes for financial reporting, creates significant risk and lost productivity. Deploying an integrated, centralized data source for all source data required for financial reporting will dramatically increase productivity and integrity of reporting.
FINDING #4 – Company Size Impacts Financial Process Productivity
As revenue reaches the $20M level, the amount of companies spending > 80 hours to close the books doubles and continues to increase by double digit percentages up to $100M. The “wait until we are bigger” syndrome appears to directly impact financial process management performance across multiple segments of company size.
Section 2: Develop a Roadmap for Your Tech Stack
FINDING #5 – Financial Close Process Times Vary Considerably
Time required for monthly financial closing is highly variable – with between 8-20 days representing 52% of respondents. Roughly 16% of respondents take over half of the month to close their monthly period. As companies scale to $10M and above, both calendar days and hours required increases and does not begin to reduce until > $100M. Many of the companies with higher revenue amounts report process challenges with board and investor reporting. Laying in the financial management infrastructure beginning in the $2.5M – $5M range will directly improve productivity and financial reporting integrity. Many recommend putting your financial house in order prior to trying to scale decision making.
FINDING #6 – Financial Processes are Overwhelmingly Manual
Four of the top five financial management reports are primarily created using manual, spread sheet-based processes. These include budget vs actuals, performance metrics, forecast and cash flow. The current use of spreadsheets is identified top 3 challenge to the financial close process. While nearly all respondents confirmed they regularly create financial statements, over a third of rely on manual processes to complete them.
FINDING #7 – Manual Processes Add Time and Risk to the Financial Close
Manual process are identified as the number two challenge to both the financial close (45%) and metrics calculation (64%). In addition, forecasting which is primarily owned by finance, uses a manual process in spreadsheets 78% of the time. When considering the increased number of data sources required as companies scale, investing in a system that brings financial and operational data together for one system of record across the customer lifecycle is critical to minimizing the increased need for resources time to manage the financial process as companies scale to > $10M.
FINDING #8 – CRM Platform is a Critical Point of Integration
The Customer Relationship Management (CRM) platform was identified as the number one source of data required for financial performance metrics calculation (73%), and was also highlighted as a key location for tracking agreement changes. 20% of respondents described changes of more than twice each year. It becomes increasingly challenging to keep invoicing cycle times short when contract changes are not reflected in billings prior to their issuance. This can negatively impact customer lifetime values both from a churn rate and the inability to see upsell and cross sell opportunities. Integration that provides real-time data flow from the CRM to the accounting or financial management system to streamline the quote to cash cycle is key to keeping Sales and Finance teams on the same page and to fulfilling customer-centricity goals.
The survey was created to give your company’s financial management processes and metrics a measure of comparison to similar companies and where you may find process optimization and productivity enhancement opportunities for your recurring revenue company. If you haven’t contributed to the survey, you can still enter your data to see how you benchmark.
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