Growth Strategy: Ideal SaaS Metrics for Every StageAccounting 101
Growth Strategy: Ideal SaaS Metrics for Every Stage
By Paul Johnson
CPA, CGMA, MBA
If your company deals primarily in contracts and subscriptions, listen up. This is important. You probably know that paying close attention to your SaaS metrics is absolutely critical to running your business effectively, but are you looking at the right SaaS metrics? Let’s find out…
For every growing contract and subscription-based business, the key metrics are Churn, Customer Lifetime Value (CLTV), Customer Acquisition Cost (CAC), Committed Monthly Recurring Revenue (CMRR), and Annual or Monthly Recurring Revenue (ARR or MRR).
SaaS businesses use these key metrics to identify trends, measure against benchmarks, develop strong growth strategy, and make the decisions that help define company success.
However, the importance of these metrics and their roles in company growth and product development will change and fluctuate at every stage of SaaS company growth.
SUPER EARLY STAGE TO EARLY STAGE:
These businesses are focused on defining their product-to-market fit. The metrics they need typically aid in gaining traction as the company advances into Stage A.
This means their most important metrics are typically Monthly Recurring Revenue and Annual Recurring Revenue, and Customer Acquisition Costs, and the Sales and Marketing costs associated with closing deals. They are busy setting the initial benchmarks that will help to define success in the months and years to come.
EARLY STAGE TO GROWTH STAGE:
During Series C, D and up, but not quite at the IPO stage just yet, companies focus keenly on efficiency to stay lean.
Companies here examine Gross Margin numbers. They want to know Customer Lifetime Values of revenue to the business, measured up to what it cost to acquire those customers. How much Churn is the company facing, and who is renewing, which can be tracked in Annual Recurring Revenue.
GROWTH STAGE TO PUBLIC:
At the IPO stage and forward, companies value visibility into revenues versus expenses.
These companies need to measure deferred revenues and earnings before tax, interest, depreciation and amortization (EBITDA) as well as a current, and continually updated window into company expenses and year over year customer growth numbers.
For growing SaaS businesses, working with a scalable cloud-based financial management solution like Sage Intacct allows for an always-current, customizable snapshot into key SaaS metrics, even as they change with every growth stage.
With Sage Intacct, your SaaS metrics extend beyond GAAP to include operational metrics for the bigger picture, all available on board reporting. Your key decision-makers and stakeholders can see critical data whenever it’s needed, so your business is always transparent, and your growth strategies strong.
Give us a ring – we can help make your financial management easier when it comes to growth.