{"id":19000,"date":"2023-07-11T07:30:00","date_gmt":"2023-07-11T11:30:00","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=19000"},"modified":"2026-02-12T04:14:48","modified_gmt":"2026-02-12T09:14:48","slug":"saas-metrics-radar-why-growth-efficiency-should-be-on-your-list-in-2023","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/saas-metrics-radar-why-growth-efficiency-should-be-on-your-list-in-2023\/","title":{"rendered":"SaaS Metrics Radar: Why Growth Efficiency Should be on Your List in 2023"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/category\/technology-innovation\/\" class=\"entry-header__link\">Technology &amp; Innovation<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tSaaS Metrics Radar: Why Growth Efficiency Should be on Your List in 2023\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2023-07-11T07:30:00-04:00\">July 11, 2023<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"SaaS Metrics Radar: Why Growth Efficiency Should be on Your List in 2023\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-us\/blog\/saas-metrics-radar-why-growth-efficiency-should-be-on-your-list-in-2023\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<div class=\"wp-block-post-author has-dark-background-color alignfull\">\n\t<div class=\"container\">\n\t\t<div class=\"col\">\n\t\t\t\t\t\t\t<div class=\"co-authors\">\n\t\t\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-us\/blog\/author\/david-appel\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2023\/07\/David-Appel-headshot-2023-1.jpg\" class=\"entry-author__image\" alt=\"David headshot\" \/>\t\t\t\t<span class=\"entry-author__name\">David Appel<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n<p>For a long time, a prominent theme in the SaaS industry was achieving growth at all costs. This makes sense to a certain extent, especially during the bullish exuberance of an industry\u2019s opening phases.&nbsp;<\/p>\n\n\n\n<p>But like most stories, the narrative around SaaS growth has changed as the years have passed\u2013and especially lately, as leaner market conditions have many organizations on the back foot.&nbsp;<\/p>\n\n\n\n<p>Now, rather than \u201cgrowth at all costs,\u201d the mandate for SaaS CFOs has become \u201cefficient growth.\u201d What does it mean to grow efficiently, and how can you ensure optimized growth now and in the future?&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-saas-growth-efficiency\">What is SaaS growth efficiency?<\/h2>\n\n\n\n<p>SaaS growth efficiency can be split into 2 useful pieces: a concept, and a formula.&nbsp;<\/p>\n\n\n\n<p><strong>Growth efficiency: the big picture&nbsp;<\/strong><\/p>\n\n\n\n<p>The general idea behind growth efficiency is that companies should scale intelligently. This means achieving growth in a financially sound way. In other words, you need to be careful not to spend too much on every dollar of revenue you acquire.&nbsp;<\/p>\n\n\n\n<p><strong>Growth efficiency index (GEI)&nbsp;<\/strong><\/p>\n\n\n\n<p>A company\u2019s growth efficiency index (GEI) is an objective measurement of how efficiently it\u2019s obtaining revenue. To find your current GEI, use this formula:&nbsp;<\/p>\n\n\n\n<p>GEI = Current year\u2019s sales and marketing costs \/ (Net new ARR &#8211; Current ARR)<\/p>\n\n\n\n<p>Generally speaking, SaaS companies aim for a GEI of 1.0 or lower. Anything much higher signals that you\u2019re not acquiring revenue as effectively as you could be.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-benefits-of-tracking-saas-growth-efficiency\">Benefits of tracking SaaS growth efficiency<\/h3>\n\n\n\n<p>Like other metrics and KPIs, your GEI offers an objective reference point for gauging your organization\u2019s financial performance.&nbsp;<\/p>\n\n\n\n<p>Among other benefits, tracking your GEI with cloud-based financial management software can help you:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Avoid many of the traditional growing pains and bottlenecks faced by SaaS companies.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Demonstrate to investors that you\u2019re growth-minded but not reckless.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Gauge your financial performance in real time and adjustment as needed.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>Let\u2019s compare growth efficiency to another important SaaS metric.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-saas-growth-efficiency-vs-the-magic-number\">SaaS growth efficiency vs. the magic number<\/h2>\n\n\n\n<p>The magic number is another revenue formula that gauges growth and performance efficiency.&nbsp;<\/p>\n\n\n\n<p>Your GEI only measures the efficiency of growth as it relates to new customers. This is extremely useful because it provides a detailed snapshot of one particular aspect of your corporate growth: your new ARR (annual recurring revenue).<\/p>\n\n\n\n<p>But sometimes you need a more inclusive view of your overall efficiency. That\u2019s where the magic number comes in. It measures total revenue efficiency, not just your newly acquired revenue.&nbsp;<\/p>\n\n\n\n<p>The magic number is usually calculated for quarters or months. To find it, subtract the present quarter\u2019s revenue from the last quarter\u2019s earnings, multiply the result by 4, and then divide that number by the previous quarter\u2019s sales and marketing spend.&nbsp;<\/p>\n\n\n\n<p>These metrics have a complementary relationship, and they both hold important information about the trajectory of your company.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-how-do-these-two-metrics-work-together-nbsp\">How do these two metrics work together?&nbsp;<\/h3>\n\n\n\n<p>Cloud-based financial management software makes it easy for finance professionals to track these two metrics in tandem.&nbsp;<\/p>\n\n\n\n<p>SaaS CFOs use this pair of KPIs in a mutually-reinforcing way. Your GEI specifically tells you how efficiently you\u2019re generating new ARR (annual recurring revenue).&nbsp;<\/p>\n\n\n\n<p>This is extremely important to investors and your board, but it\u2019s only half the story. The magic number fills in the other half by showing how efficiently your firm is generating new revenue and holding on to previous subscriptions.&nbsp;<\/p>\n\n\n\n<p>An attractive GEI of 1.0 or lower is always something to aim for. But that needs to be counterbalanced by a similarly strong magic number for the same period.&nbsp;<\/p>\n\n\n\n<p>A low GEI paired with a high magic number tells you that your company isn\u2019t holding on to new customers very effectively. The \u201cmagic combination\u201d is for your GEI and magic numbers to both fall below 1.0.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-saas-growth-efficiency-and-company-maturity-nbsp\">SaaS growth efficiency and company maturity&nbsp;<\/h3>\n\n\n\n<p>As your company scales, your GEI should ideally drop. This reflects a decline in your customer acquisition cost (CAC) and rising customer lifetime value (CLTV).&nbsp;<\/p>\n\n\n\n<p>Automation creates the internal infrastructure to seamlessly facilitate this trend.&nbsp;<\/p>\n\n\n\n<p>SaaS organizations that incorporate automation pave the way for sustainable scaling over time.&nbsp;<\/p>\n\n\n\n<p>Firms that take the \u201cgrowth at all costs\u201d approach frequently see strong initial performance followed by a reversal as they start to lose subscribers.&nbsp;<\/p>\n\n\n\n<p>It\u2019s much better to get things right the first time around instead of doubling back to compensate for past mistakes.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-maximizing-your-saas-growth-efficiency\">Maximizing your SaaS growth efficiency<\/h2>\n\n\n\n<p>Putting cloud-based, automated software to work in your department is just one way of optimizing your SaaS growth efficiency.&nbsp;<\/p>\n\n\n\n<p>Here are some other best practices well worth considering:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Running monthly forecasts to ensure that your positive momentum is on track to continue.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Using role-based dashboards to maximize the effectiveness of your team.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Automating revenue recognition with a single source of truth\u2013rev rec gets much trickier as you scale, leading to revenue leakage.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Trading in disorganized spreadsheet budgeting for cloud-based automation. Accurate budgets make for profitable quarters.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>In your efforts to grow as efficiently as possible, there are also some common problems to watch out for.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-growth-efficiency-sticking-points-nbsp\">Growth efficiency sticking points&nbsp;<\/h3>\n\n\n\n<p>Below are some of the worst offenders when it comes to keeping SaaS companies from growing as effectively as they should.&nbsp;<\/p>\n\n\n\n<p><strong>Lack of cohesion across departments&nbsp;<\/strong><\/p>\n\n\n\n<p>Data siloing is one of the worst impediments to optimized SaaS growth. When companies silo their data, each department houses and updates its information independently. The info then gets manually sent back and forth through email attachments.&nbsp;<\/p>\n\n\n\n<p>This leads to potentially serious errors in forecasts and reports, lost information, cyber liabilities, and many other problems. What it doesn\u2019t lead to is efficient growth.&nbsp;<\/p>\n\n\n\n<p><strong>Untamed regulatory chaos&nbsp;<\/strong><\/p>\n\n\n\n<p>Recurring revenue companies are beholden to complex regulations like ASC 606 and others. If you handle compliance manually, these complexities will only compound as you scale.<\/p>\n\n\n\n<p><strong>Incomplete financial data&nbsp;<\/strong><\/p>\n\n\n\n<p>Insufficient reporting granularity can be a big impediment to corporate growth. It leads to finance teams formulating plans based on a financial picture that\u2019s only halfway drawn.&nbsp;<\/p>\n\n\n\n<p>Cloud-based financial management is helping SaaS CFOs gracefully leap these hurdles and many others like them.&nbsp;<\/p>\n\n\n\n<p>Automated software provides real-time regulatory updates, comes equipped with an exhaustive library of SaaS metrics, links up departments with an SSOT, and much more.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-growth-is-essential\">Growth is essential<\/h2>\n\n\n\n<p>As a SaaS finance pro, you\u2019re instinctively attuned to the value of metrics. They help you chart your organization\u2019s growth and results across time, allowing you to proactively steer the direction you\u2019re heading in. As essential as they are, however, metrics only reflect results back to you.&nbsp;<\/p>\n\n\n\n<p>The secret to sustainable long-term growth lies in fine tuning and expanding your financial leadership skills, rather than a single strategy.&nbsp;<\/p>\n\n\n\n<p>Navigate the future of SaaS finance with tips and tricks to help you identify the metrics that matter for your business on the Modern SaaS finance academy.We have curated lessons taught by industry leaders and subject matter experts on topics including how to achieve success throughout your company lifecycle, the 6 C\u2019s of SaaS finance and so much more!<\/p>\n\n\n\n<p>You can join the academy today: <a href=\"https:\/\/sageu.com\/modernsaasfinance\/?utm_source=organic&amp;utm_medium=sageu&amp;utm_campaign=organic\">click here<\/a>.&nbsp;<\/p>\n\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Modern SaaS Finance Academy<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p><!-- wp:paragraph --><\/p>\n<p class=\"\">The Modern SaaS\u00a0 Finance\u00a0Academy is a free online training hub designed for CFOs, Controllers, FP&amp;A, Revenue managers, Revenue Operations, and other members of the finance community in fast growth SaaS companies.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"https:\/\/sageu.com\/modernsaasfinance\/?utm_source=organic&#038;utm_medium=sageu&#038;utm_campaign=organic\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\tid=\"cta-id-18976\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tdata-button-location=\"cta_box\"\n\t\t\t\t\t\t\t\t\t\t\t>Learn more<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1271694534-1440x810.jpg\" class=\"single-cta__image\" alt=\"Women discussing in office space\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1271694534-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to our Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Get our latest business advice delivered directly to your inbox.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-ab515c6e-7e90-4c2f-a67e-113872516e8b\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg\" class=\"single-cta__image\" alt=\"Working from home with tea in hand\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s no secret that SaaS metrics are vital to success. Here\u2019s one of the most important to track in 2023.<\/p>\n","protected":false},"author":1433,"featured_media":9211,"menu_order":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"footnotes":""},"categories":[48],"tags":[420,346],"business_type":[41],"lilypad":[],"context":[],"industry":[450],"persona":[],"imagine_tag":[444],"coauthors":[599],"class_list":["post-19000","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology-innovation","tag-cloud-financial-management","tag-cloud-technology","business_type-growing-business","industry-software-saas"],"sage_meta":{"region":"en-us","author_name":"David Appel","featured_image":"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-965936890.jpg","imagine_tags":{"444":"Intacct Medium Business"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice US","distributor_original_site_url":"https:\/\/www.sage.com\/en-us\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts\/19000","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/users\/1433"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/comments?post=19000"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts\/19000\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media\/9211"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media?parent=19000"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/categories?post=19000"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/tags?post=19000"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/business_type?post=19000"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/lilypad?post=19000"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/context?post=19000"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/industry?post=19000"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/persona?post=19000"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/imagine_tag?post=19000"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/coauthors?post=19000"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}