CFOs should use metrics to intelligently shape and inform their strategies regardless of their industry. But when your industry moves at breakneck speeds as it does for SaaS companies, the metrics, and your visibility around them, become more than helpful. They become indispensable to creating a shared consciousness on the direction of the business.
Why exactly do your SaaS metrics matter so much? Among other vital advantages, your metrics allow you to:
- Know where you stand: Objectively track the success of your campaigns and products in real time and proactively make adjustments as needed.
- Show competence to key relationships: Maintain and improve the confidence of your investors and even gain new ones, which is critical.
- Lead across departments with data: Give better direction and guidance to your colleagues in other departments, such as sales and marketing.
Let’s take a closer look at SaaS metrics. As you read, keep a few questions in mind. Does your finance team have all the tools it needs to operate optimally? Are you wasting time and resources due to poor visibility around key data?
The SaaS accounting “grey zone”
When it comes to the SaaS accounting technology they use, many finance leaders fall into a trap that we like to call the “grey zone.” You could also think of it as a technological “no man’s land.”
A CFO is sitting in the grey zone when they’re using accounting software that isn’t fully automated. They’ve made the leap to using basic accounting software but haven’t yet unlocked the power of full-scale automation.
When you’re hanging around in the grey zone, you’re unable to access all kinds of valuable and profitable benefits such as:
- Automatic data transfers across departments: Too often, valuable time and resources are wasted on sending info across departments, such as Sales and Customer Success, and the endless back-and-forth involved with that. With automation, everyone has access to precisely what they need, all the time.
- Robust internal controls: Especially as you begin to scale, setting up a high-quality and resilient internal control architecture is extremely important for investors and M&A.
- Automated tax and regulatory help: For SaaS companies, the regulatory landscape is changing faster than ever. Automated accounting software can help ensure that you never fall behind. ASC 606/IFRS 15 is useful and necessary but makes a regulatory slip-up perilously easy. Invest in regulatory peace of mind.
Now that you know more about the power of automation compared to plain old accounting software let’s get back to SaaS metrics.
SaaS metrics matter even more in hard times
It’s no secret that the SaaS market has finally started to lose a fair bit of the momentum it had built up.
But when market conditions get tough, forward-thinking and strategically-minded finance leaders don’t panic. They turn to their metrics for the answers they need. Just as importantly, they analyze their approach and reconfigure their priorities to match the needs of the moment.
The metrics that matter the most during periods of strong economic growth tend to differ from those you prioritize in retracting markets. Remember, even if a business move seems more on the “defensive” side, you’re still playing offense if the maneuver helps your company survive the looming recession.
In particular, keep a sharp eye on these three metrics:
- Cash burn rate: Your CBR is precisely what it sounds like. It measures how quickly you’re burning through your cash. After determining your CBR, you should analyze your different expenditures to see if there’s any room to cut down on non-essentials. The equation for determining your CBR is: (Start Balance – Ending Balance) / Months Measured.
- Churn: Staying on top of your churn rate should be one of your top priorities as a SaaS CFO at all times. But during a recession, an inflationary period, or any other sort of market difficulty, large and sudden spikes in churn can lead to crippling financial consequences for unprepared SaaS companies.
- Engagement rates: This ties in with churn. You want to do everything possible to keep your engagement rates stellar. This might involve leveraging your social followings in new and creative ways, starting a targeted newsletter, or something else altogether. Get creative with it. You want your customers using your product.
In good times and in bad, your metrics are your best friends.
Is it time to get your vision checked?
Even if you’re doing all the metrics-tracking in the world, it won’t do you any good if you’re not staying on top of your financial visibility.
Specific members of your team need different sets of information. They’re tracking entirely different data sets and answering completely different financial questions. SaaS accounting is definitely not something where a “one-size-fits-all” approach is appropriate.
That kind of low-resolution strategy can be downright harmful to your annual recurring revenue (ARR), cash flow, and other metrics tied to P&L. Instead of settling for poor visibility, look for SaaS accounting software that can give your team individually-tailored financial dashboards.
Essentially, a financial dashboard is a condensed page view that gives you all the information you need at a glance, unlike a spreadsheet with large volumes of tabs.
You can organize financial dashboard views in all kinds of ways depending on your needs and goals:
- CFO or Controller dashboards: Make sure the top players of your finance team are equipped with all the data they need on a single screen. Say goodbye to scrolling through tabs till your eyes start hurting.
- Custom financial dashboards: Slice and dice your data to effortlessly see customized views based on transaction categories, volumes, currency, and pretty much any other important factor you can think of.
- SaaS metrics dashboards: Metrics matter significantly, as we’ve already discussed. But gaining visibility around your metrics through effective dashboards is equally critical.
In the 21st century, there’s no excuse for SaaS CFOs to lag on their visual organization strategy.
So there you have it. SaaS companies can thrive even in challenging markets with a few simple ground rules.
Get out of the accounting “grey zone” and adopt automation, track your metrics like a hawk, and give your finance team 20/20 vision on what matters most.
Click here to learn even more about streamlining your approach to FinOps efficiency.
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