If your revenue is recurring like subscription revenue, SaaS metrics are the lifeblood of your business. These metrics are the building blocks of your profitability and growth. GAAP Financials aren't telling you the whole story so that begs the question, what else are you missing out on without a SaaS metrics dashboard to visualize your financial and operational data into actionable insights?
The importance of SaaS Metrics
Most SaaS and subscription finance teams track basic SaaS metrics such as Expansion and Contraction as a way of understanding the overall health of the finances. Intuitively, they all know that “Expansion”, as a concept, is a short-hand for a variety of subscription activities that result in the increase of a customer’s subscription value. Just to name a few, they might include add-ons, Cross-Sells, Upgrades, Upsells, Price Uplift, and Foreign Exchange gains on multicurrency subscriptions. Similarly, “Contraction” obfuscates the events that led to a decrease in a customer’s subscription value such as: Downgrades, Downsells, Debooks, Price Markdowns, and cascading Foreign Exchange losses.
To understand where and how to grow the business, you must be able to determine what’s working and what isn’t. You cannot do this with a broad-brush approach. At a minimum, you must be able to analyze your subscription activity by Customer cohort (e.g. by Acquisition Date, by Segment, by Industry Vertical) and by Product Line (e.g., Product Family) to identify actionable insights where you are experiencing successes or failures in order to determine where best to take actions to accelerate or remediate.
Going beyond metrics to actionable insights
What you can't see in high-level SaaS reporting is the reason for trends in your customer behavior. For example, can you easily see who’s adding to their subscription, who’s downsizing their subscription, and who’s unsubscribing altogether? Can you see how much it costs you to acquire a customer, or which customers and product lines are the most and least profitable (and in which industries) so that you can adjust your sales and marketing strategies accordingly? In short, more complex metrics such as CMRR, ARR, CAC, LTV, Renewal Rates, and Churn are the language spoken by today’s SaaS organizational leaders and investors.
I can just calculate these metrics in Excel, can’t I?
As a start-up, maybe, but even then your metrics will only scratch the surface. As a scale-up, the immense time that your Accounting and Finance teams are spending exporting and aggregating the necessary data out of your financial system, populating spreadsheets, creating and managing formulas, correcting formula errors, validating those calculations, and showing the metrics in a presentable format is draining them and elongating their day. It’s creating manual tasks and avoidable opportunity costs instead of freeing up your teams’ time to actually add value.
