Business metrics are extremely important to business leaders due to the insight they provide into their company's operations and profitability. But, there’s more to reporting on metrics than simply understanding more about the company’s trajectory. Crucial metrics can be used to take action and make improvements to the way a company operates.
The data surfaced in useful financial metrics and reporting can also lay the groundwork for informed decision making and business planning at every level. There are certain metrics that are extremely relevant to early-stage B2B SaaS companies. Here is how business leaders can use those metrics to guide strategic decision making at the top levels. Each of these metrics represents a different value to different business leaders—and the emphasis that leaders put on these metrics will be unique to each leadership team.
6 Finance Metrics Early-Stage SaaS Companies Must Analyze Regularly
- Recurring Revenue
Early-stage SaaS businesses should always monitor their performance to ensure that they’re meeting their goals and benchmarks. This performance data is also important for internal and external financial reporting processes. The key metric that most business leaders and investors are concerned with is recurring revenue. This can be in the form of Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR). Both of these metrics can help business leaders identify earnings trends and predict future revenue more accurately.
- Customer Lifetime Value
For businesses to succeed, they must understand the financial value of their relationship with their customers. Customer lifetime value (CLTV or LTV) can help deliver this insight to SaaS leaders. It refers to the amount of revenue generated by each customer over the course of their relationship with the business. Analyzing this metric can help businesses evaluate product fit, customer loyalty, and the value of each customer profile.
- Customer Acquisition Cost
Early-stage SaaS businesses are usually under immense pressure to make the most of the funding provided to them. They must be aware of how much is being spent and how much value is generated in return for those dollars. Measuring and analyzing customer acquisition cost (CAC) tells business leaders how much they are spending to acquire a single customer. This is often analyzed in conjunction with customer LTV to determine if the cost of acquiring a customer can be covered by the revenue generated by that customer over time.
- CAC Payback Period
It’s usually not enough for businesses to determine how much revenue a customer generates and if that covers the cost of acquiring them. Early-stage SaaS businesses typically have limited funds and must become profitable and self-sustaining before those funds run out. This is why businesses should also measure the number of months it takes for CAC to be paid back. This can also help new businesses determine contract lengths for maximum profitability.
- Churn Rate
Like any subscription-based business, software companies must be aware of customers that leave following a trial period or after a period of paying for the service. Businesses should measure how many customers they’re losing as a result of product-solution mismatches, poor service quality, and more. This churn should be measured in terms of customer numbers as well as the monetary value of the churn.
- Burn Rate
All businesses must be aware of the amount of cash they have on hand and how much they’re allowed to spend. Burn rate refers to the speed at which companies are spending their money without replacing it with revenue. This metric helps business leaders understand what sums they can spend on activities that don’t directly or immediately generate revenue.
How to Use Effective Revenue and Cost Reporting to Make Informed Business Decisions
Determine the Metrics That Mean the Most to the Business
While each of these metrics is important to business leaders in its own way, leadership teams place different values on the insights generated through each metric. Depending on funding type, business size, product offerings, and investor requirements, business leaders may choose to place uneven emphasis on these metrics. The first step in conducting effective financial reporting is determining the metrics that investors and business leaders find the most important.
Achieve Complete Visibility Across Business Silos
Financial metrics are designed to provide business leaders with greater insight into their business. However, it’s important for these metrics to be presented with the appropriate context. It’s also important for the information used to calculate these metrics to be accurate and complete. Business silos can prevent this. For 55% of enterprises, lack of visibility and siloed data are an issue. Businesses must find a way to close this gap and deliver holistic visibility to each stakeholder.
Create a Shared View of Company Performance with a Single Version of Reports
Different operational teams within businesses can sometimes have different views of how the business is performing based on their unique perspective. These views, however, are only insightful for top management if they are consolidated. Financial reports must deliver financial information that’s consolidated from data gathered across departmental lines.
Make Performance Data Accessible for All Stakeholders in a Central Repository
Financial reporting is often viewed as a bottom-up activity designed to provide business leaders with complete performance data. However, accessible, non-technical reports can help all business teams feel more connected to the operation and give them a greater understanding of their role. More than a quarter of employees who plan to leave early in their role feel disconnected from the business. Accessible financial reports can resolve this by giving team members insight into how the overall business is performing.
Gathering and reporting on SaaS business metrics is a crucial process that can keep operational teams pulling in the right direction during periods of business growth. Effective reporting can give business leaders and investors a clear and holistic view of business performance. Sharing the most relevant metrics in a timely way will help guide leaders to financial data that’s most useful for data-centric decision-making that will help companies sustain growth and achieve greater heights.