Surviving and thriving in business regardless of external financial conditions might sound too good to be true. SaaS is a highly competitive industry, and even the top players in the market can have their good fortune reversed if they aren’t constantly vigilant.
Developing a hawklike focus on your metrics–and just as importantly, knowing which SaaS metrics to watch–can help you weather virtually any economic storm. Metrics are vital tools that help you understand:
- Where you’ve been: In business as in life, it’s critical to take an honest assessment of your past performance. Metrics give you objective signposts about your day-to-day effectiveness or lack thereof.
- Where you are: Knowing your present performance helps you stay realistic about timelines and trajectories. It’s essential to manage your expectations without losing your ambition.
- Where you’d like to go: The most valuable thing about SaaS metrics is their ability to jumpstart your progress toward your goals. Whether your quarterly or annual plans involve growing subscribers or revenue, lowering churn rates, or something else, metrics can help them become realities.
Which particular metrics should you be watching, and why?
Voluntary And Involuntary Churn
During an economic rough patch, your churn rates should be one of the first places you look to get your bearings. As a SaaS CFO, we doubt you’re new to the overall concept of churn. You’re probably aware of its enormous impact on your net revenue.
But you might not know that there are two distinct kinds, and each has its own management strategies. The two types you should be monitoring are:
- Voluntary Churn: Voluntary churn is what it sounds like: users have voluntarily decided to unsubscribe from your service. Sometimes the reasons for this are apparent and quickly correctible, and you can win back lost business. But in other instances, you might consider directly reaching out to your customers and asking them about changes or service upgrades they’d like to see.
- Involuntary Churn: Involuntary churn occurs when a problem arises with payment processing. The user’s payment failed to go through, so they were unsubscribed involuntarily. Often, the issue is on the user’s side (expired or canceled card, and so on), and they’ll correct it and resubscribe. But there’s always the potential that the error is on your end, so be sure to stay on top of your payment processing.
Our next recession metric is just as crucial as your churn rates. But unlike churn, which is more about managing external negatives, this one puts a bit more direct control back in your hands.
Is Your Cash Burning Up?
Although that’s a great question for everyone to ask themselves during a recession, it looms even larger in the minds of SaaS CFOs.
Your cash burn rate (CBR) shows how quickly you’re burning through your financial resources. The equation used to find your CBR is:
CBR = Cash / Monthly Operating Expenses
Your CBR is measured in months. For instance, if you have $2,500,000 cash on hand and your monthly operating expenses are $250,000, your CBR would be ten months.
Your CBR is all about maximizing and stretching your dollars and cents as far as they’ll go. Be sure to take a thorough look at every aspect of your daily operations to see where you might be able to trim the fat.
A great way to do that is to automate every aspect of your department that you can. Board members and investors will want to know that you’re doing everything possible to cut costs during hard times.
Take It Month By Month
When the economic seas start to get rough, it helps to narrow your time horizon. Slowing down and taking everything one month at a time can help your entire team operate more optimistically and effectively.
Your monthly recurring revenue (MRR) is the foundation of your annual recurring revenue (ARR). So it pays, literally and figuratively, to preserve your MRR in any way you can.
A few effective strategies for doing that include:
- Catering to the committed: Your most committed customers form the backbone of your ongoing revenue. Showing a bit of direct gratitude can go a very long way. Consider special offers or perks for members who stay with you for specific periods of time and tactics of that nature. Everyone loves feeling appreciated.
- Offering intro discounts: If your potential customers get the recession jitters and new signups start to drop, don’t despair. It’s human nature to perk up at a great deal: offer some.
- Sway the fence-sitters: Have someone on your team comb through reviews and other user-generated content related to your brand. See what you find in common about features or benefits your service might be lacking in the minds of your customers. Address their concerns and proactively make it known that you are.
Choose and use one of these strategies (or combine them), and you should see an uptick in your MRR relatively soon.
Hard Times Call For Smart Teams
In the world of SaaS accounting, there’s no smarter long-term choice than opting for automation. We can help you optimize practically every facet of your department to thrive for years to come.
Check out our digital guide if you’d like to learn more about the importance of SaaS metrics during a market downturn.