One cannot steer a business well while blindfolded. Solid financial reporting with relevant key performance indicators is your compass to navigate your business in the marketplace. They provide crucial insights into the health, efficiency, and sustainability of your company.
Moreover, having consistent, good-quality financial reporting and forecasting at hand will help you prove your worth when you want to raise new funding or sell your business.
There are several KPIs you can follow to track your SaaS B2B business. We suggest you start with a few of them and add KPIs to your reporting as you grow. Here are some of the most important ones to start with:
MRR – Monthly Recurring Revenue – this is the number of customers times their monthly revenue. MRR is the engine of any SaaS business.
ARR – Annual Recurring Revenue – a longer perspective on your revenue generation.
CAC – Customer Acquisition Cost. This tells you how much you spend to win a new customer. It looks at your sales and marketing spend vs the number of new customers won.
LTV – Lifetime Value. This is the revenue you receive from one customer over the lifetime of that customer. To calculate this, you need to look at your average revenue per account and your average customer lifespan.
LTV/CAC – This tells you how much lifetime value a customer brings compared to the initial acquisition cost.
Net Retention – Net Retention looks at the net of MRR expansion (increase) and MRR churn and downgrades (decrease) vs the beginning MRR balance value for your existing customer base.
Gross Margin – This looks at your SaaS business profitability – the profit after subtracting from your revenue the direct costs for delivering your service.
What needs to be in place for you to have reliable metrics?
To have reliable data to base your decisions on, you should make sure that at least the following two points are taken care of:
MRR Schedule – Perhaps the most important source of data is an up-to-date MRR schedule. The MRR schedule keeps your customer information in one place: unique customer name, MRR value, and subscription start and end dates with monthly tracking for MRR. This set of data shows the value of your customer base as well as any movements within your customer base over time. This information is needed for many of the KPIs like MRR and Net Retention.
Nature of spend – Another important step is to make sure you register your spending in the right place in your books; Marketing costs need to go to marketing expenses in your P&L, sales costs to sales expenses, platform running cost to platform running costs and so on. Without this, you will not be able to reliably calculate e.g. CAC or Gross Margin.
With its part-time CFO service, Finaly supports growth companies in navigating their business landscape – including setting up SaaS metrics reporting.