KPIs are the tools driving change and investment for early-stage SaaS CFOs. Think of your metrics as your company’s vital signs: they can signal that everything is operating as it should be or that there’s a significant cause for concern. They transcend opinions and politics to a shared consciousness on what needs to be done.
Without a concrete list of metrics that will guide your business strategy and decisions, you’ll have no idea of the state of your organization’s performance. This can be downright disastrous for new startups without a firm financial footing.
Cash flow is naturally the first KPI that comes to mind, and it’s a central one for early-stage SaaS startups. But relying on that alone won’t help you with:
- Analyzing subscriber activity in granular detail across cohorts: we’ll cover metrics in this article that will help you better comprehend and capitalize on the behavior of your subscribers.
- Unlocking the full story that your financials tell about your trajectory: SaaS CFOs must maintain a short-term and long-term view of a startup’s financial situation and appropriately emphasize each as needed.
So, what exactly makes SaaS metrics so useful for early-stage SaaS startups, and which ones should be on your shortlist for special attention?
Analyze your cash flow and cash burn rate
These executive metrics will assist you in getting a clear picture of two critical issues: how much cash you have coming in and going out and how long those funds will last.
Your cash flow can be measured with the following formula:
Cash Flow = Cash Inflows – Cash Outflows
Depending on the period you’d like to determine your cash flow for, you’d use the daily, monthly, quarterly, or annual totals for your assets and liabilities. Automated accounting software can seamlessly generate those figures for you.
The other cash-related SaaS metric you should monitor closely is your cash burn rate (CBR). Your CBR tells you precisely what you’d imagine: how quickly your company is burning through its cash.
Unearned optimism is perilous for SaaS companies. Keeping a close eye on your earnings and costs will help you and your team stay fiercely realistic about your financial runway while giving you the freedom to be optimistic when it’s truly warranted.
Startups almost always measure their CBR in months. The formula for your CBR is:
CBR = Cash / Monthly Operating Costs
Remember, your cash flow and CBR work hand in hand to give you the complete picture of your financials. How much money do you have coming in, and how long will it last in light of your financial obligations?
Maximize the value of every customer
When your early-stage SaaS company is initially cutting its teeth in the market, you have two main options to help deepen your pockets. The first is to acquire more customers more quickly. The second is to increase the satisfaction of your existing customers so they stay with you for longer periods.
Almost all SaaS companies operate on a recurring revenue basis, so pursuing both strategies is ideal. As the CFO of a new SaaS startup, you’ll probably find it more cost effective to increase the satisfaction of existing customers rather than drum up droves of new business.
However, before increasing your customers’ happiness with your product, you have to gauge their current satisfaction. The two significant metrics that you’ll use for this are:
- Customer churn rate: Customer (logo) churn measures how many customers unsubscribe from your services over a given period. It’s usually measured in months, quarters, or annually. Keeping your churn rate as low as possible will help you with our next metric.
- Customer lifetime value: Your CLTV shows you how much each customer spends on your product before unsubscribing. Automated accounting software can help you quickly find and track your CLTV.
Much like cash flow and CBR, these two metrics work most effectively when you track and optimize them together across time.
Keep a balanced perspective
As a SaaS CFO, it’s your job to maintain a balanced and objective view of the company’s financials.
One of the best ways to do this is to be conscious of your monthly recurring revenue (MRR) and your annual recurring revenue (ARR). As the names imply, your MRR and ARR measure how much monthly and yearly revenue you net.
Think of it this way: a high ARR is your overall goal each year, but the only way you can get there is by continuously improving your MRR. Monitoring your monthly revenue will give you a real-time sense of how the company’s annual performance is shaping up.
And just as importantly, focusing on your MRR can be a source of renewed optimism when times get tough and your results seem to slow down. It’s all about maintaining a balanced view.
Give your company an “unfair advantage”
To prove your early-stage SaaS financial model, KPIs are essential for startups that are new to the marketplace. Have a look at our E-book to learn more about predictive KPIs for SaaS companies and how these metrics can give you a competitive edge.