In order to assess the financial well-being of your business, you can monitor a wide variety of key performance indicators. Leaders in SaaS finance shouldn’t panic when faced with prioritisation decisions. Regardless of the size of your firm, these prime SaaS financial KPIs are crucial.
The finance department of a SaaS (software as a service) company has a unique vantage point from which to evaluate the company’s well-being, performance, and potential for expansion.
It can be difficult to prioritise the plethora of key performance indicators (KPIs) that exist for gaining insight into your company strategy. Whether your company’s executive team is making choices about marketing strategies, employment numbers, employee training, customer support, or your SaaS product, having access to the correct financial information at your fingertips helps keep everyone on the same page.
What Is SaaS Finance, And What Are The Most Important SaaS Financial Metrics?
SaaS finance is the set of financial models, plans, and operational KPIs that ensures the seamless functioning of subscription-based software firms.
Modeling and reporting on recurring revenue has unique obstacles, making this a particularly difficult area of finance. Also, the SaaS business model’s complexity has knock-on consequences on other areas of the company’s operations, such as financial reporting and metric tracking.
There are a plethora of measures you may monitor to assess how well your SaaS enterprise is doing. Yet, the following 5 SaaS financial measures are crucial to comprehending your company’s success and learning how to enhance (or maintain) revenue growth.
- Recurring Income (MRR and ARR)
The income of your SaaS business can be forecasted using two financial metrics: monthly recurring revenue (MRR) and annual recurring revenue (ARR). The difference between MRR and ARR can be used to foresee how quickly or slowly your business may expand in the near future.
The easiest method to see if your revenue is rising, how stable it is likely to be, and why it fluctuates over time is to keep tabs on your MRR and ARR.
Methods for Estimating Regular Income
Your MRR can be determined by first dividing the sum of all money earned from contracts with customers by the number of months covered by such contracts. Your total MRR can then be determined by adding the individual amounts for all of your clients.
Assuming all of your contracts with paying customers are active and have a term of 12 months or more at the conclusion of the period you’re looking at, you can total up their ARR by adding all of their monthly payments.
There are situations where annualised MRR is preferable to annualised ARR, such as when you have a large number of clients whose contract period varies but isn’t short-term or one-time. Multiply your current MRR by 12 to get the answer.
- Customer LTV (LTV)
Customer lifetime value (LTV) is the amount of money you can expect to generate from each of your subscribers over the length of their time with your firm. This monetary statistic is useful for determining whether or not your SaaS product is a suitable fit for the market, whether or not you are losing money on client acquisition, and which consumers are likely to be long-term supporters versus casual browsers.
How to Calculate Customer LTV
Lifetime value (LTV) is determined by multiplying annualised per-customer revenue by gross margin and dividing the result by the annualised churn rate.
- Customer Acquisition Cost (CAC)
The cost to acquire a new client, or customer acquisition cost (CAC), is the sum your business spends to do so. Using CAC, you can determine if your sales are sufficient to pay your marketing costs. You’ll be losing money on your marketing efforts to pull in new subscribers if they cost more than the revenue they bring in on average.
The Method for Determining CAC
Total up the amount spent on advertising and promotion in order to bring in new customers, and then divide that total by the total number of new consumers that agreed to contracts during that time frame.
- Repayment Time for Capital Expenditure Credits
The customer acquisition cost (CAC) payback period is the number of months it takes your business to recoup the money it spent to acquire a single customer. There will be greater profit per client if the CAC Payback Period is less than the term of the contract. If the payback period for the CAC is the same as or longer than the term of the contract, then you are either losing money on the customer or breaking even.
Understanding the Methods Used to Determine the Payback Period for a CAC
CAC Payback Period is found by dividing CAC by the product of MRR and gross margin.
- Income Per User Average (ARPU)
The term “average revenue per user” (ARPU) refers to the typical amount of money brought in by a single consumer. You may use this metric to see if your average revenue per customer is increasing or decreasing over time.
In addition, you may determine which of your subscription tiers is the most lucrative by calculating the average sale price and the average monthly subscription fee for each tier.
Formula for Arrival Rate Per Unit Cost
Average Revenue Per User (ARPU) is calculated by dividing total revenue in a given time period by the number of users in that time period.
To determine the average revenue per user (ARPU) for a certain subscription tier, add up all of the income earned over a given time period for that tier, and then divide that total by the total number of users at that tier during that time frame.
Final Wrap
While there are certainly additional relevant metrics to consider, businesses of all sizes and stages of development can benefit from monitoring the 5 highlighted here. These metrics can show you how your firm is doing right now and what the future holds for it. The data provided here will put you in a position to make the kind of strategic decisions that will have a lasting, positive effect on your company’s bottom line.
Keeping tabs on these SaaS financial KPIs can be time-consuming, but you shouldn’t let that discourage you. Profit Jets can let you easily collect crucial KPIs by organising data from your company’s customer relationship management and human resources systems. Connecting your current infrastructure with Profit Jets enables real-time data ingest, eliminating the need to manually compile information from many sources and run complex calculations.