Money Matters

SaaS metrics: The key to mastering your financials

The role of the CFO in a SaaS company is similar to that of the captain of a large ship. It’s almost unbelievable that someone much smaller than the ship can profoundly affect its course and trajectory.

Your SaaS metrics are the “helm” or “steering wheel” of your accounting department. You can steer your company through turbulent markets with the help of your metrics in the same way that one person can steer a ship with a wheel.

Gain more control over crucial accounting concerns by:

  • Being smart about your resources: Knowing how much money you have available and how long it will last is crucial. We’ll supply the resources necessary to make it happen.
  • Keep your attrition rates in check: Customer attrition is an absolute dealbreaker for businesses that rely on a steady stream of recurring payments. Do you know how many different kinds there are and what methods exist to bring each down?
  • Focus on one place to accomplish a lot: Manual data transfers are a significant time-waster for SaaS accounting teams and executives in the modern era. The finance department’s number one pet peeve is dealing with reconciliations. We can help you find a better way to find information in confusing inboxes.

What is the first thing you should ask yourself if you want to take charge of your business’s finances?

How quickly are you spending money?

The cash burn rate (CBR) is a helpful indicator of a company’s financial health and liquidity. It forecasts how long your current savings will last in light of your current expenses, and it is the same as your potential financial runway.

Knowing your company’s current CBR status is crucial if you rely on recurring revenue. The same way a pilot can’t take off if the runway is too short, a SaaS CFO can only take a company as far as its finances will allow.

This indicator cannot be separated from your current cash flow situation. It’s a valuable tool for anticipating the costs of hiring new employees, launching a product, or any other financially significant event.

There are several categories for your CBR. Depending on the specifics of your data needs, each one shines in a slightly different setting:

  • Gross burn: Your monthly costs can be estimated by looking at your “gross burn.” It’s a pure indicator of the financial obligations of your SaaS business and takes into account neither revenue nor anything else.
  • Net burn: It’s important to distinguish between your net burn and your gross burn because the latter doesn’t factor in your monthly revenue. Your net monthly burn rate can be calculated by deducting your gross burn from your monthly revenue.
  • Runway: Your cash runway can be estimated by dividing your total cash on hand by your net burn rate. That means your company’s financial “runway” will be in months, not years.

Companies with recurring revenue must keep their financial expectations in check, especially when times are tough. For the next three fiscal quarters, you’ll be able to make more informed decisions by clearly understanding what’s important and what isn’t.

For example, how many additional salespeople do you actually need? How much do you anticipate reducing your marketing budget for the next quarter from what was originally planned?

Finding your CBR will be a breeze with automated SaaS accounting software, and you’ll be able to combine it with robust forecasting to answer questions like these confidently. Simply input your baseline information to get predictions for complex multivariable situations.

Understanding customer attrition rates

Peter Drucker writes in The Effective Executive that the goal of any business should be to “create and keep a customer”. The other half is learning why customers are leaving and taking measures to prevent future losses.

Every SaaS business experiences some level of customer churn. However, the moment you realise it’s happening at an alarming rate, try to resolve two pressing issues:

1. Why customers are leaving in greater numbers than usual?

2. What steps can be taken to efficiently and effectively seal the holes?

Two distinct types of churn exist, and their respective causes are not always the same.

Voluntary churn occurs when customers voluntarily stop using your services. However, when customers cannot complete their subscription transaction, this is known as involuntary churn.

Fixing involuntary turnover is simple. If there is a problem with your payment processor, it’s your responsibility to fix it. New card information must be provided if the issue lies with the customer.

When customers leave voluntarily, it could be for any number of reasons. There’s a chance your prices are too high compared to the value you provide. Maybe there are features or services that your customers want, but you don’t offer. Your churn data can be meticulously monitored with the help of automated accounting software.

Looking through customer reviews and forum content for your industry can be very helpful once you’ve established that voluntary churn is the cause of declining subscription numbers. Customers often give exact reasons for leaving your service or one like it in reviews and other user-generated content such as social channels. 

Time is money, so make the most of it

For many SaaS accounting firms, manual data transfers between departments and team members are one of the biggest time wasters. What’s more, doing so can lead to various errors that could cost you and your team a lot of money.

How you interact with your SaaS metrics, your team, and your data consolidation standards and practices could be entirely transformed by automation.

Finance managers now have instantaneous access to all the data they need thanks to cloud-based accounting software and its consolidated financial dashboards. Every detail your team captains need– assets, expenses, net income, detailed and categorised cash flow data, and more–can be seen at a glance.

A lot of information is tracked by controllers, and their dashboard displays that information. They need trouble-free entry to numerous forms of financial information, including salary and wage details, cash flow metrics, and budgeting information.

If your team’s accounting software includes role-based financial dashboards, you’ll never have to send another email to collect data again.