KPI’s: Key Recommendations
SaaS/subscription businesses are more complex than traditional businesses. Traditional business metrics totally fail to capture the key factors that drive SaaS performance. In the SaaS world, there are a few key variables that make a big difference to future results. This post is aimed at helping SaaS executives understand which variables really matter, and how to measure them and act on the results.
Entrepreneurship in Britain continues to remain very much in vogue, ably assisted by heavy backing from most quarters (not least the media and government). Prime Minister David Cameron has put entrepreneurship to the forefront of his “strategy for growth”. “There’s only one strategy for growth we can have now and that is rolling up our sleeves and doing everything possible to make it easier for businesses to grow, to invest, to take people on, he told BBC News.
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As a CFO, the balance between sales and marketing spend and new ARR or MRR creation is critically important to measure and monitor. Over invest in sales and marketing relative to your new SaaS bookings and will you not the see the expected margin expansion or cash creation. Conversely, under investing in sales and marketing when you have achieved the correct product/market fit and you will miss out on opportunities for growth. Therefore, it’s important to calculate the SaaS Magic Number and other sales efficiency metrics to determine your sales health.
Ben Murray writes exclusively on SaaS Metrics and Forecasting and also offers free SaaS excel models on his site. In How to Calculate the SaaS Magic Number Ben outlines three sales efficiency metric every SaaS CFO should know. Alan
Joel York has been one of the leading SaaS metrics commentators in the field. His series on SaaS metrics is a must read for those in SaaS.
This guide helps to outline the key SaaS metrics and how they are related.
Many thanks to Ben Murray - [The SaaS CFO] (http://www.thesaascfo.com/) for the recommendation. Alan
Headcount expenses often represent the largest expense on a SaaS company’s P&L. It’s important to spend the time to develop a detailed headcount forecast model so that not only your wage forecast is accurate but also your cash flow forecast.
In any software company, there are always new hires, terminations, and transfers so make your forecast life easier with an automated Excel model.
Ben Murray offers access to a simple model he uses to allow SaaS CFO’s to forecast wage related costs. NB there is a US slant to this model but it can be easily modified to meet the needs of EU SaaS businesses. Alan
CAC Payback Period is finally receiving some much deserved attention. As traditional debt can steal away our free cash flow, so can your CAC debt. With a few key inputs, you’ll better understand the long-term economics of your SaaS business.
Useful primer for SaaS CFO’s including access to a downloadable excel template. Alan
The following blog post by Tom Gorski from SaaS Genius outlines 21 of the most important SaaS Startup Metrics
This blog is well worth a scan as it breaks key metrics down into different buckets. I think trying to measure 21 KPI’s is a little too many so would take the view that it is best to zone in on a smaller subset depending on where your SaaS startups is in its lifecycle. The article breaks the metrics down into three main buckets to help with this.
Many people ask us for help understanding what all the SaaS metrics mean, why they’re useful and how they’re calculated. We thought we’d invest some time detailing the most important metrics for SaaS businesses into a two-page cheat sheet.
“UTM” stands for “Urchin tracking module.” Urchin Software Corporation was acquired by Google in 2005, and their software laid the groundwork for what we now know as Google Analytics.
Customer Lifetime Value (LTV) for SaaS businesses is perhaps one of the most difficult metrics to calculate. Use our free cheat sheet to get to a reliable estimate, and get a better picture of the health of your business.
At 19 I started a SaaS company in my dorm room and just sold it in February after my 25th birthday mainly due to luck and blind hard work. Over the companies life, we raised $2.5M in venture capital, drove $5M in sales (mainly by cold emailing potential partners), and grew our customer base to over 10,000 paying customers.
One of the most powerful levers for SaaS companies to master is payback period. Payback period is the number of months a company requires to payback its cost of customer acquisition. The median SaaS startup has a payback period of 15 months on a gross margin basis.
A cohort study or panel study is a form of longitudinal study used in medicine, social science and ecology. It is one type of study design and should be compared with a cross-sectional study.
Over the last few years I’ve helped quite a lot of SaaS startups to create or fine-tune their KPI dashboards. While every situation is a bit different there’s also a lot of overlap, which made me think that it would make sense to publish my template (not without polishing it a bit). I hope other SaaS startups will find it useful, and it will also make it easier for us to communicate what KPIs we’re looking for when we talk to SaaS entrepreneurs.
In case you haven’t started to think about your plan for 2017 yet, now’s the time. To help you a little bit with your planning, here are three little tools that you might find useful. If you’re a long-time reader of this blog, you may have seen them before.
Entrepreneurs need to ask the right questions: how can I measure and optimize each step of my funnel to grow quickly and expand my customer base? One simple answer is: AARRR.
aaS companies are handed dozens of shiny metric tools on a tray and told to measure things. It can be incredibly difficult to try to assess this collection of numbers and figure out where to begin.
Lately I’ve been talking to more entrepreneurs that have product/market fit and are working to find a repeatable customer acquisition process (see 5 Steps to Startup Success in 30 Words). Now, sales and marketing metrics become critical and it’s time to figure out what works.
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