B2B SaaS: 9 Key Financial Metrics You Should Track
Mar 16, 2022
Planning for growth is at the heart of every successful business. In order to have an accurate growth strategy, you need reliable data. Financial metrics do just that: they help you plan for your long-term success.
By seeing what works and what doesn’t in your B2B SaaS business, SaaS finance metrics improve your decision-making for the future - and your cash management too.
Many KPIs exist and it can be hard to know which ones matter the most for your SaaS company. Keep reading to find the 9 financial SaaS metrics we advise following, how to calculate them and how to track them effectively.
One thing we can tell you already is to pay attention to A/R metrics - which Upflow helps you achieve easily with specific dashboards.
MRR - Monthly Recurring Revenue
What Is MRR And Why It’s Important.
Your Monthly Recurring Revenue is a key metric in your B2B SaaS business. It represents the recurring revenue you have coming in every month: subscription fee, add-ons, special features, etc.
Your MRR is a good indicator of your business health as a fast-growing company.
How To Calculate Your MRR.
Your MRR is calculated every month by taking your average amount of subscription (with optional add-ons) multiplied by your number of customers on the period.
How To Grow Your MRR.
Your MRR should be growing every month. If it’s not the case, there are by definition two variables you can improve to grow your MRR: your average subscription fee or the number of clients you have.
Maybe it’s time to rethink your strategy to grow your customer base or even to focus more on your upsell. Either way, it’s better to be proactive.
ARR - Annual Recurring Revenue
What’s ARR and Why It Matters.
Your Annual Recurring Revenue is the yearly amount of recurring revenue you get from your clients. It is exactly like your MRR but on a year scale.
Your ARR helps you compare your growth year after year. Seeing the big picture of your revenue increase helps you make long-term decisions more accurately.
How to Calculate Your ARR.
To calculate your Annual Recurring Revenue, simply take your Monthly Recurring Revenue and multiply it by 12.
What to Do If Your ARR isn’t as High as You Want.
If your ARR metric is lower than what you’d like, it can help to dive into each Monthly Recurring Revenue and see what happened exactly each month.
You might find, based on one or several ARR reports, that you have a seasonal business. Or you might have had to face unforeseen circumstances that affected your market (hello, covid-19!).
From there, you can plan for the future with new offers, added paid features, or even plans to explore new markets.
CAC - Customer Acquisition Cost
What is CAC and Why is it Essential for Your SaaS Business?
Your Customer Acquisition Cost is one of the most important SaaS financial metrics to track. It indicates the cost induced to get new customers over a given period.
Keeping an eye on your CAC is useful to track which marketing actions were effective, which means you’ll be able to redouble your effort (and money) on what works - not on the rest.
On the other hand, if your CAC is higher than your CLV (which we’ll see below), it means you are losing money by being in business - not great and definitely not sustainable.
Calculating Your CAC.
Your CAC equals your marketing and sales expenses incurred over the number of new clients gained during a given period.
You usually have a global CAC metric, but you can also get more specific by measuring the CAC for your Google Ads.
How to Lower Your CAC.
With your CAC, it’s a matter of keeping it as low as possible. If it begins to skyrocket, something is off.
Our first advice would be to talk with your marketing or sales team to see what’s going on. Then, you can choose to redirect some of your effort towards a new strategy.
DSO - Days Sales Outstanding
What is DSO and Why It's Important.
Your Days Sales Outstanding is an important metric. It represents the number of days it takes for your invoices to be paid. A low DSO is a sign of good company performance and of an efficient collection process.
Your DSO is an important A/R metric that influences your cash management, crucial for fast-growing SaaS companies.
How to Calculate Your DSO.
There are 2 ways to calculate your DSO:
The simple method, based on the average number of days it takes for your customers to pay you
The countback method, where you go back month by month to find how many days your clients took to pay you on a given period.
The third secret way to do this is to use software like Upflow that calculates it for you!
Need help calculating it manually? Have a look at our free A/R metric spreadsheet.
How to Reduce Your DSO.
The key to reducing your DSO is to be proactive: having efficient invoicing and payment processes is primordial. You can also look at incentivizing early payments and - of course - automating this process with Upflow.
Are your late payments piling-up and your DSO too high? Have a look at our free guide with tips to get paid on time!
What Is Churn Rate and Why it Matters to Your SaaS Business.
Your Churn Rate is the rate at which your customers are leaving you. We know - it’s sad! But keeping an eye on this finance metric means you’ll be able to set up effective strategies to lower it.
Churn is a natural part of the customer lifecycle and measures your customer retention. In a way, it’s a measure of your customer success.
Some of it is voluntary - your customers don’t want to use your product anymore, and some of it is involuntary - when a payment fails, for example. That’s why having a dunning strategy in place is great to reduce your churn rate.
How to Calculate Your Churn Rate
You get your Churn Rate by making a ratio between the customers who unsubscribed over the customers you had at the start of a period.
How to Reduce Your Churn Rate.
One of the golden rules of marketing: it is cheaper to keep your existing customers than to acquire new ones. Lowering your churn rate means keeping your customers longer.
To do so, have a look at your subscription management process. Specifically, your involuntary churn rate - being proactive about it will make a big difference!
Are your late payments piling-up and your DSO too high? Have a look at our free guide with tips to get paid on time!
What is Gross Margin and Why it's Important.
Your Gross Margin is the amount you get after deducting your direct expenses - ie your profitability. In SaaS companies, the expenses tend to be high at the beginning but the business eventually reaches higher margins. But how high?
As you perfect your product and move towards a bigger market penetration, your margin should get higher.
How to Calculate Gross Margin in SaaS Companies.
Your gross margin is your net sales minus your Cost of Goods Sold. Careful not to deduct the SG&A (Service, General & Administrative) costs in there but only the direct ones, such as labor or machinery.
How to Get a More Accurate Gross Margin.
B2B SaaS businesses often have several streams of revenue. It is therefore important to have gross margin metrics for each of these streams - including one for recurring revenues.
CLV - Customer Lifetime Value
What is CLV and Why is it Important?
Your Customer Lifetime Value is one of the key metrics of your SaaS. It tells you how much on average customers bring to your company while they’re in business with you.
Keeping your CLV in mind (or readily available) is essential to know what value a customer will bring you throughout their lifecycle. It brings together your CAC and your Churn Rate into a concrete metric you can easily monitor.
How to Calculate Your CLV
There are different ways to calculate your CLV with more or fewer details. The most direct customer lifetime value formula is to multiply your average profit per customer with the average time they stay with you. Subtract this amount to your CAC.
How to Increase Your CLV in SaaS
To increase your CLV, you can reduce your churn rate or your CAC. You can also increase the average profit per customer. A good way to do the latter is to make sure you offer relevant upsells.
It’s also interesting to have a look at your CLV for different subgroups within your customer base - it might be time to offer a higher-priced subscription to one of them?
What are Bookings in SaaS and Why are they Important?
Bookings is a future-based metric. It indicates the value of contracts agreed upon between your SaaS and your clients - which should equate to revenues in the future.
However, it saves you from artificially inflating your MRR and ARR as you don’t record your bookings into them.
Your bookings are one of the key SaaS financial metrics as it gives you an estimate of the revenue that will come into your business. It helps you gauge how much your product is on demand.
In the case of subscription-based companies, signing a new 3-year contract with a client is booking. Revenue is when the cash comes in and/or is recognized; it is a GAAP term.
Calculating Your SaaS Bookings.
Your bookings is the total value of new contracts with customers at a given period, in any currency.
How to Get More Bookings.
If it’s lower than you’d like, it’s time to increase your sales and marketing efforts.
Annual and longer-term contracts are a great way to boost your bookings. Optimizing your processes to be long-term orientated is a great way to foster your growth.
Pay close attention to your churn rate as well, as it has a direct influence on your bookings.
ARPU - Average Revenue Per User
What is ARPU and why is it Important?
Your Average Revenue Per User is the value you get on average per user. It’s similar to the CLV, without the lifetime component.
Your ARPU increases with time and is a sign of your SaaS’ good health. It’s important to keep this key metric high as it means more revenue, since your average user value increases. This means that when you broaden your customer base, you’ll get even more revenue!
How to calculate your ARPU
Your ARPU is straightforward to get: you divide your total revenue over the number of your clients for a given period.
Your ARPU is a great metric to monitor as it gives you important feedback on your overall strategy:
If your ARPU is close to your highest paying offer, for example, it might mean your customers want to pay you more. Time to craft a new offer at a higher price point!
If it’s close to your average pricing, it can also be a smart move to increase your current prices.
You’ve seen the most important SaaS metrics - now what? At Upflow we like to give you information that’s relevant but also practical, so keep reading to find out how to track these metrics in a way that’s scalable.
Track Your Key SaaS Metrics Effectively.
The best way to track your saas financial metrics is to use software, rather than excel. Indeed, what can be done at the beginning of your startup manually needs to be automated so you can be more efficient.
Here are the benefits of using software to help you track your key metrics:
Have Reliable Data, The Smart Way
As a CFO, your time is valuable and much better used for strategic decision-making. And to make the best decisions, you need the best data. We’re back to our saas operating metrics!
Using software not only allows you to save time on these metrics (and your team’s too) it allows you to have accurate data.
Calculating all these SaaS metrics manually can take time. Not because the formulas are complicated (you’ve seen that they’re not) but because you need to have reliable numbers to get reliable results.
Switching from spreadsheet to spreadsheet to track the latest number doesn’t exactly say “fail-proof or efficient process” either. You also need a machine that has 100% of their calculations right - and as amazing as it is, that’s not the human brain.
Centralizing your data in a software ecosystem means you’ll always have the latest data and therefore the most up-to-date metrics, now and as you scale.
Get In-Depth SaaS Company Financial Metrics.
Not only are your SaaS metrics going to be more accurate because they’re correct, but with software, you’ll also be able to get more precision.
Subscription management software offer customizable and detailed reports that will give you more accuracy on your metrics. Chargebee for example gives you access to a Churn Breakdown Table that offers more details on your churn rate: when did the customers churn, how long after signing up, etc.
This can help you identify more precisely the reasons for churn and act against it, rather than trying to improve your churn on a global scale. It can also help you make strategic decisions and focus on the type of customers or offer that is the most profitable or grows the fastest.
On Upflow, your DSO is automatically calculated on a monthly basis. You also have access to the detail of unpaid invoices on a given month and the average payment delay per client. This will enable you to adapt your A/R collection for your different types of clients and customize your workflows.
In short: software does the heavy lifting for you, with a high level of detail. The metrics it delivers are more accurate and the best thing is: they’re right here at your fingertips.
The most important SaaS metrics for your B2B Scale-Up are your MRR, ARR, CAC, DSO, churn rate, gross margin, CLV, bookings, and ARPU. While it may seem like a lot to track, they’re all important in their own way.
The good news is that there is an effective way to track them all: software. Using software gives you more accuracy and more details on these SaaS metrics.
Reliable metrics are keys to supporting your strategic decision-making as a CFO. It’s also something you can use for benchmarks and/or leverage for a valuation.
Upflow is an A/R collection software that displays relevant financial SaaS metrics.