What Metrics do SaaS Companies Use?
Think about the things we “subscribed to” ten years ago: "a magazine" or "Netflix DVDs by mail." Today, the answer is probably "Spotify," "Office 365" or “DropBox.” Subscription-based applications, aka Software-as-a-Service (SaaS), have seen a massive shift in how we consume everything from music to productivity software and require a cloud financial management solution to get the metrics they need.
Back when selling software was still about shipping CDs, DVDs and one-off perpetual licenses (e.g., for the most recent edition of Adobe Photoshop), sales departments were the usual drivers of revenue forecasts. The number of sales that they could realistically close in a given quarter determined the financial outlook. Key metrics once included:
- Profits
- Recognized revenues
- Operating expenses
- Quote to cash
Under a SaaS model, many of these still apply, especially revenue recognition and quote to cash. Fresh requirements enter the picture, too, such as the need for tight Salesforce integration and the new central role of efficient subscription billing. A SaaS business is built upon recurring revenue, and so it is not necessarily well-summarized by the point-in-time metrics that were used in traditional software sales.
Instead, these metrics, in particular, are vital for SaaS CFOs and finance teams to track, compile, and show to their respective organizations:
- Committed Monthly Recurring Revenue (CMRR)
- Annual or Monthly Recurring Revenue (ARR or MRR)
- Customer Acquisition Cost (CAC)
- Churn
- Customer Lifetime Value (CLTV)
The problem is that there is a mismatch between what SaaS firms need visibility into and the old tools they rely upon for such insight. With no single source of truth, metrics have to be pulled together from multiple data sources, such as Salesforce, Excel, and accounting software at the end of each month. All of these numbers are then consolidated into a manually prepared spreadsheet – a time-consuming and error-prone process that is not a good fit for the fast-moving SaaS world.
Ideally, finance and accounting teams could access information on-demand throughout the month and see how churn, acquisition costs, and other metrics evolve. Excel sheets and legacy financial apps can't deliver here. However, cloud accounting software such as Sage Intacct is a perfect solution to this problem for SaaS vendors.
What Can Cloud ERP and Accounting do for SaaS Metrics Tracking
If you are a vice president of finance at a SaaS organization, you need timely, accurate reporting that you can use to improve your monthly processes, keep your stakeholders informed and ultimately plan ahead. Upgrading from spreadsheets and legacy software to something like Sage Intacct helps you hit all of these marks, providing essential benefits such as:
- Visibility into essential SaaS metrics, without having to dig deep into Excel sheets.
- An audit trail that is easy to present to and talk about with your key stakeholders.
- A consolidated view of everything from within the accounting app, which is already used each day.
- Less time spent pulling numbers from disparate sources, meaning more ability to analyze them and plan accordingly for your future.
With the help of an experienced implementation partner like RKL eSolutions, you can start making a successful transition from the accounting processes of yesterday's software business models to ones more appropriate for SaaS and subscription-oriented metrics. Your particular requirements will be taken into account and directly addressed in your cloud-based solution.
Want to See How Sage Intacct Could Work for YOU?
Get in touch with your questions about Sage Intacct or to schedule a personalized demo and see how Sage Intacct would work with YOUR SaaS business.
