Strategy, Legal & Operations

How SaaS CFOs automate finance

Bowery Capital’s annual Finance and Ops Summit draws hundreds of finance leaders from fast-growth SaaS companies, many of which are seeking to upgrade their financial foundation to deliver a higher level of reporting and forecasting.

Several CFOs from great growth companies that have relied on Sage Intacct cloud financials shared their experiences about how they transitioned from QuickBooks to streamline their financial operations and address key decisions around forecasting, SaaS metrics, subscription billing, and revenue recognition.

Leveraging Data

New York’s Olo – a digital ordering and delivery enablement provider for some of the world’s leading restaurant chains – operates a complex business model supporting 250 brands and 50,000 locations. For Peter Olo, senior vice president of finance, the key is to leverage data to identify trends and drive business decisions. His key takeaways:

  • Think Ahead – It’s essential to focus on scalability and ensure you’re focusing on solving problems for today and tomorrow. It’s hard to balance between the desire to get something live versus preventing problems two years down the road, but taking the time to do it right from the start is the right way to proceed.
  • Get Ready for Insights – Olo processes as many as 500,000 transactions daily, creating troves of data to analyze. For example, the ordering trends show that customers tend to choose healthier options at the beginning of the week, but by the end of the week the wheels fall off and most opt for pizza and burgers.
  • Refine Business Models – Olo devised a new pricing strategy that maintains the monthly per-location fee – the baseline to cover operating costs. Then it overlaid a per-transaction fee that increased average revenue per unit by 20 percent. Customers are happier because the mix between flat and variable costs means their costs only rise as business increases.

Strengthening Forecasting

Vestwell offer simple 401(k) and 403(b) retirement plans on an unbundled turnkey platform for financial advisors and companies. The business model features of subscription-based pricing for certain plans as well as usage-based pricing based on the number of participants.

According to Dave Sheen, Senior Vice President, a good forecast integrates with the CRM platform, marketing tools, and cloud financials. The reporting and metrics from those tools can help build the forecast around the right drivers. “You can’t build a good forecast using Excel in a vacuum,” he noted.

  • Challenging Revenue Forecasts – One of the trickier aspects of Vestwell’s business is estimating participation and contributions, since assets under management (AUM) are a key determinant of revenue. But it’s difficult to gauge contribution rates and how many assets will be in plan at the year-end. Sheen said the key is to get the sales team to enter accurate forecasts and estimates of AUM and the actual size of the contract. That provides a clearer picture of revenue 120 days out, since it takes about four months to provision a new client, initiate billing, and bring revenue in the door. “As the finance guy, the further I can get up that chain toward contracts signed – and even higher – the better,” said Sheen. “If I see opportunities coming in the door, I have greater visibility into my forecasts.”

Defining and Monitoring Unique SaaS Metrics

At Dashbid, a leader in programmatic advertising, CFO Brian Dowdall stresses the importance of defining a sometimes-changing set of metrics – and that requires broad agreement among stakeholders. “When your business requires you to develop a more unique metric, get input from those involved, test different variations, and negotiate a consensus so that all stakeholders agree on the value,” he said.

Dashbid starts with metrics that are well-established throughout the industry or market because broad consensus already exists. “It’s a lot harder to have disagreements on those,” Dowdall said, “but you need a system to create, track, report, and forecast them. You can’t do this in Excel.”

Sometimes, however, there are unique metrics that either you or the board wants to investigate or track – metrics that take a lot of time to formulate and test.  For instance, DashBid carefully monitors churn. However, its business model only features recurring revenue, not the contracted revenue of a typical SaaS company. Instead, it follows a few sub-inputs to the churn rates. These include a three-month average of churn for different account segments. Another key metric is the number of impressions per month. If they fall below a certain level, it indicates a greater risk of churn.

Once they analyzed a few different variations, the finance team worked with key stakeholders to ensure they agreed on the metric before moving forward.

These great SaaS finance leaders have gone through that journey in scaling each of their businesses representing high ACV, high-volume, and land-and-expand subscription models.  Across all of these organizations, the common success factors revolve around a careful combination of people, process, and technology that allow them to graduate off of QuickBooks or Excel. This enables them to create a quote-to-financial forecast process integrated with, and forecast the unique SaaS metrics that guide their growth.