Digital Salon: Calculating and Reporting SaaS KPIs
If you’re not using your numbers to examine your business and strategy, your investment and strategy will be left up to guess work. Understanding SaaS metrics will help you find and utilize the right metrics to gauge success and diagnose areas of improvement for your business. In this session, Ben walks through common SaaS metrics, what they are, and benchmarks for success.
✅ Ideal for Founders and Accounting & Finance Leaders
📈 Join to discuss:
- Components of a SaaS PnL (COGS, Operating expenses, Bookings, etc.) and how to calculate them
- Calculating and benchmarking margin, profit, and cash flow metrics including Gross Margins, EBITDA profit, and burn multiple.
- Key customer acquisition metrics and benchmarks (CAC Ratio, CAC Payback, SaaS Magic Number, etc.)
- How investors will evaluate your business with the Rule of 40 and how you can use it internally
- Which method of revenue tracking (MRR, ARR, CARR), is right for your business
You know, it’s funny, we’re having really important discussions with founders around double digit multiples. And so if you’re not killing it at all, your metrics need to understand why you’re not, you know, performing and in order to maximize the multiples on your ARR. And I’m excited about today’s conversation with Ben Murray, and he’s the founder of the SAS CFO and the SAS Academy, where they offer SAS metrics and benchmarks and for finance and forecasting and they have content and trainings if you haven’t looked them up.
He’s he’s kind of the standard as it relates to just how to measure and what to measure. Today Ben is going to be walking us through standard metrics that every company should know, benchmarks for important metrics and practices to create better tracking and reporting. And so as we’re thinking about the uniquely designed ways that we can capture specific characteristics of the recurring and subscription model in revenue, be thinking of ways how you can internalize this for your existing companies and models and in that kind of thing.
Ben, I’ll turn the time over to you. I’m looking forward to our discussion and feel free to ask any questions that you might have. We have a smaller group today. Welcome Shane. And so this is definitely set up where we’re going to go through chunks of content and then we’ll have some spaces where we can ask questions. So take it away Ben.
Thanks a lot, Justin.
Yeah, great to be here.
My name’s Ben and you know, it’s awesome that you guys do this.
So let me transition over and I’m going to open up my slides and we’ll get rolling here.
A lot of content to cover today. But again, I’ll pause throughout this, ask questions, ask any questions throughout this. Happy to take any Q&A and if we have time at the end more Q&A. So yeah, let me share and maximize here and get going.
Welcome to Zoom. Welcome to Zoom. I’m pretty sure you’re muted.
All right, there we go.
So you should see my title slide here and yeah, we’ll get rolling. So we’ll talk a lot.
We’re going to talk metrics, talk frameworks, talk data, talk go to market metrics. So you’re covering a lot today. You know, a little bit about myself. SAS CFO by trade, came up through the ranks of FP&A in the airline and software industries. And today, focus on courses, content, coaching, consulting. Started my blog about seven years ago on all things SAS metrics, finance, you know, templates, forecasting. So share a lot of content there and then my courses at the academy. And here’s my email, ben at the sascfo.com.
If you need anything in the future. Today’s agenda, talk about my five pillar metrics framework that I’ve implemented, that I’ve taught to about a thousand students so far in my metrics foundation course.
And then probably 30 SAS companies so far that either consult with or have them as a fractional client. You know, so the why, you know, of course, the big thing as a CFO is we want to avoid the black hole spend, especially in the sales marketing area. And of course, all areas where we’re just investing a lot of dollars and we have to understand the ROI on those dollars. And early stage, you know, depending on your era level, you know, maybe there’s a pass, right?
We don’t have enough data to justify things. But as you scale, you get to five, 10 to five to 10 million. Definitely have to justify above 10 million error.
We have to have these metrics in place to guide our business.
You know, and one simple question, and this gets to the cost of error concept is like, can you answer for every dollar I invest in sales and marketing? How much AR does it produce? What’s that direct input into the sales marketing function? And I’m going to talk more than just GDM today, but love the cost of error metric that we’ll talk about. But as we invest, what’s the output, right? We want higher AR, we want 10X, you know, AR multiples, you know, so how do we get there and how do we invest wisely to scale our business?
And, you know, this is the good old iceberg example, you know, but, you know, with SaaS companies, you know, financial statements are the tip of the iceberg, right? They only take us so far, but what’s below that waterline that we can’t see. And that’s the big thing with SaaS companies. And, you know, this is what I consider the modern SaaS P&L. So we definitely, right, we have our financial statements to manage our business, and then we need the proper format for our SaaS business. And this is what I’ve worked on over and over.
And, of course, there are no real standards in SaaS, even though I’m a founding member of the SaaS Metric Standards Board. This is the P&L that I find is most consumable.
for our operators, for our board investors, potential investors. And there’s so much we can do with the SAS P&L because we know, for example, in the revenue section, revenue streams are changing so much. SAS 1.0 was subscription.
Now we’ve got, of course, professional services, transaction usage, consumption, processing, even seeing a lot of managed services, hardware, other.
So many different revenue streams that we have to keep track of that we need to have that clearly defined in our SAS P&L. And then really our COGS, COGS versus OPEX, I have this all the time, this discussion with SAS companies, of the proper expense coding. And really, if we have a complex revenue structure, really our COGS departments are dictated by our revenue structure. So one, we can calculate margins by revenue streams, so important within SAS. But of course, pure play SAS, if you have subscription, maybe a little services is another.
Most likely, we’re going to have tech support, customer success if they don’t sell.
It’s a hotly debated topic, whether that’s in COGS or OPEX. And then DevOps, our hosting costs to get us our proper gross profit calculation.
OPEX, this is how it is, R&D, sales, marketing, G&A. So with any SAS business, when I teach this, when I work with SAS companies, we’ve got to get the proper SAS P&L set up.
And then that sets us up for success to calculate SAS metrics within our business.
But I go through the SAS P&L over and over.
I’ll pause there just for a quick second in case anyone has any questions before we get into the framework on that proper SAS P&L setup.
Sounds like, yeah.
Quick question on the subscription to services ratio. Are we still seeing like an 80-20 to get optimized for valuation? Yeah, I would say that’s- So 80% of the revenue coming from recurring subscription and then 20% services. And then we have some discounting if we go over on the services?
I think that’s still a good rule of thumb is that 80-20 ratio.
And something that when I show my five pillar metrics framework, that’s a box I’d measure within my framework.
And we know early stage, sometimes it’s one for one.
Sometimes it’s $1 of ARR for $0.50 of services.
But we have to see how is that trending over time? How is our product set up to reduce the services burden?
But definitely something I have discussions with founders all the time. But I still think that’s a good rule of thumb valuation wise.
Yeah, yeah, no, great question. But if you have any other questions on the SAS P&L, I’m happy to take those or throw those in chat. So of course, we have financial statements. But the big thing, SAS metrics, right?
Again, big believer.
I do so many coaching reviews of SAS P&Ls to make sure we have that structure.
Even $200 million SAS companies who have $100 million of ARR and some other revenue streams, still coaching them on that SAS P&L setup because they’ve just gone so far down the road in a certain way.
And now they’ve got to get it back to the standards. So financial statements key, the proper SAS P&L setup key, and then finally, SAS metrics.
Below that waterline that we really need to understand the economics of our business. So where do we start? And this is my SAS metrics framework that I teach in my course.
I’ve taught to about 1,000 students so far with my coaching clients, my fractional clients that we set up.
And this is really our roadmap, our discovery process to implement the right metrics at the right time for our business. And we look at this red arrow here, and it’s here for a reason, right? Because we’re going to scale here from left to right. As our company grows, if we’re a million ARR, my LTV to CAC ratio, probably not significant, not accurate.
It’s going to be all over the place. We’re not going to manage our business yet with that.
But I’m probably focused on growth sources, new versus expansion.
And Justin, you mentioned revenue mix.
That’s right here in this box under the margin profile. But we’re going to scale left to right. So if I’m a million ARR, all right, let’s make sure we have good growth tracking, good bookings tracking.
We’ve got that MRR schedule in place.
Then we acquire customers.
And then retention, right?
Are we keeping these guys? Logo, GDR, NDR, renewal rate, maybe some sort of CSAT program to supplement our retention numbers. Then margins. Margins become so important.
Are we hitting best in class 80% gross margins?
What’s our margin by revenue stream?
What’s our revenue mix, as Justin said?
We monitor that over time.
And then our financial profile.
Rule of 40 comes into play at some point, the trade-off between profit and growth. And then our OPEX profile.
How much are we investing in R&D, sales marketing, GNA, and of course EBITDA?
And then finally, efficiency. So we’ll talk a little bit more about the GTM metrics, but not only GTM efficiency, but also org efficiency.
Rev per FTE is popular. I created this Rose metric, which actually looks at wages and contract spend, contractor spend. So who cares about the number of FTEs?
Really, how much am I investing in my employee base and contractor base to get that recurring revenue level and my efficiency and my org there?
So this is the framework, like I said, teaching my SAS metrics program, implement for my clients, and again, write metrics for the right stage of your business. I’ll pause there. We’ll talk more about this, but yeah, just let me know if you have any questions on the framework. Of course, tons of metrics in SAS, but I’d say these are the most common, most popular that we need to implement for our business.
You know, and before we… Yeah.
I was just going to say, you might go into this, but what is the most impactful way that you’ve seen companies gather this and organize around the idea of, you may have some new things to start collecting and you may have to socialize and you may not actually be measuring some of these components in order to pull off the calculations. What’s maybe like the first kind of step that a team would need to take in order to kind of start gathering the metrics?
Yeah, the data. Yeah, no, great question. Yeah, I’ll get to that, Justin. I’ll have a few slides on that. Just like, all right, here’s my process. You have to implement this, the data, what systems are these coming from, you know, to implement this framework. Yeah, great question. Some of the other ways that you would qualify a business as being sufficiently large or mature to fit into some of these buckets, you highlighted, you know, maybe a million on one end, not on the other, but maybe help us understand the gradient a little bit more in between.
Yeah, yeah, definitely, Max. So I would say, you know, like generally, like ARR thresholds are hard, but less than two to three million, yeah, you’re not gonna have a calculation in each of these boxes.
You know, I’ll definitely focus on growth and retention at those levels.
You know, yeah, we’re setting up the correct SAS P&L, you know, maybe your margins are 60%, who cares, right? It’s gonna be a transition, but you know, less than two to three million ARR, I’d say you’re probably more focused in the growth and retention boxes. Maybe we’re calculating some of these, maybe we can, but we’re not putting too much meaning in that yet because I would say there’s not enough data flowing through our business yet to make these meaningful.
And then I’d say the three to five million ARR, that’s when sometimes I can, you know, for some, if they have the proper systems in place, the technology, the data, you know, if they’re 5 million, I can calculate a metric for each of these boxes. And then my expectation for five to 10 million, you should be able to calculate these. And then above 10 million ARR, absolutely you should be calculating these and potentially then segmenting these metrics.
For example, segmenting your efficiency metrics based on acquisition channels or pricing plans, for example. So that’s the kind of the rough levels I see after working with a lot of SAS companies and how their data progresses.
Great, thank you, Ben, very helpful.
Yep, yeah, great, great question. You know, so with this, with the SAS metrics framework, you know, we have to talk about the accounting foundation because really when I work with SAS companies, we can’t even get to this point yet unless we have the data in place, the systems in place, the chart of accounts, et cetera, to get there.
And you know, I’ve got my CPI, I’ve done debits and credits, you know, and accounting I say is not sexy, but it’s satisfying, right?
It’s got to be in place correctly, otherwise we’re just, we just can’t do it. And whenever I take on a new client, you know, the last thing I look at, right, we SASify their P&L, we get their chart of accounts in shape, we look at their systems, get their data, create the forecast model, get historical data in there. The last thing I actually do is start looking at the SAS metrics, you know, because there’s so much processing data that is needed to get to that point.
You know, and there are four common mistakes that SAS companies make over and over, you know, before we can get to repeatable, consistent, accurate SAS metrics calculations, because there’s a progression here, right?
We’ve got to look at the accounting, that accounting foundation, are you on QBO, Xero, NetSuite, Sage, whatever it is, doesn’t matter.
Then we create our SAS P&L, and we feel good in those numbers because our SAS P&L data feeds our metrics, right?
Sales and marketing in this P&L clearly defined, defined correctly, coded correctly every month in our financial close process, and now we can feed that into our sales and marketing efficiency metrics.
So four common mistakes before we get to some of these metrics is the SAS P&L structure, the chart of accounts, department coding, and RevRec. And I’ll go through these pretty quickly, but the first is the SAS P&L structure.
And I showed you what I consider the ideal SAS P&L structure, but this probably looks pretty common, right?
An export out of QuickBooks, or it could be Xero, whatever system, right? We cannot manage our business with this P&L, right? There’s too much detail, gross profit is incorrect.
How much am I investing in sales? No idea, right? But very common.
So we’ve got to SASify our chart of accounts, SASify our SAS P&L, you know, so we can get to this structure, clear and distinct revenue streams, which are going to feed SAS metrics, COGS dictated by our revenue stream, so we can have the proper gross profit calculation, and then finally, OPEX, you know? So chart of accounts to our SAS P&L. You know, so a couple of steps here, we talk about clear and distinct revenue streams, COGS dictated by our revenue streams, and OPEX, right?
It doesn’t vary, it’s R&D, sales, marketing, and G&A. The next thing is our chart of accounts, right? And this is, you know, where the accountants are living underneath the hood of our financial statements, you know, to develop that proper definition, you know?
And this is getting kind of the accounting, debits, credits stuff, but there’s a structure that we follow with our trial balance, our chart of accounts, to have enough detail to create our financial statements, and also so we can do financial analysis with all the data that’s flowing through our financial statements. So for SAS companies, always looking at our revenue streams, do we have these coded correctly? You know, do we have subscriptions separate from usage?
You know, that’s a big mistake, I’m a big believer you’ve got to separate subscription from any sort of variable revenue streams.
Well, I’m gonna run retention separately on those, see what their retention profile is by revenue stream, and then if it makes sense, if it tells a better story, you know, Justin’s, you know, talking about ARR valuations, combine those revenue streams, run retention, is it going up into the right? Perfect, right? Better story to support higher valuations.
So underneath the hood, we have to have good coding of our revenue streams because that flows to all our metrics, it’s gonna flow to your valuation discussions, you know, so area of focus, revenue definition.
Now you may not be in that role, you know, but if you’re a CFO, if you’re in the finance accounting function, we’ve got to get this set up correctly.
And then on the expense side, you know, there are a lot of things to cover here, but employee related, right? You think about the biggest investment in our SAS P&L, wages, benefits, taxes, bonuses, commissions, you know, so have clear definition there, are we capitalizing R&D? And then marketing, you know, so marketing as a whole, I like to have enough detail there, we don’t just have one GL account that says, you know, advertising, you know, we have it by acquisition channel, for example, how does marketing create their budget?
And how should we track that budget and have enough detail in there so they have enough visibility if they’re tracking cost per lead or cost per opportunity from these different acquisition channels? So marketing is area I also look at, and then we’ve got the non-op area.
So again, and this is more like this slide would be like for investment bankers are going through due diligence, don’t assume, right? And I see this all the time, don’t assume that your expenses and headcount are coded correctly on your SAS P&L, or even if you’re internal, you know, making sure, hey, where are expenses being coded?
Is my headcount being coded?
If I have hundreds of employees, so common that headcount is miscoded in our P&L and that post to the P&L, you know, so just part of that data process with our HRS system. So step two, again, chart of accounts, clear revenue definition, subscription separate from variable, separate from services. If you have managed services, that’s separate from professional services, hardware, et cetera, enough detail in our chart of accounts for expenses, you know, not too much detail, but not too little.
So I’ll pause there as we go through, you know, step one with SAS P&L, step two underneath the hood, that chart of accounts definition. And again, where we’re going here is it sets us up for success to calculate accurate SAS metrics.
So the next thing is department coding, right?
So this is very common early stage SAS. We just have this big bucket of expenses. And even you see larger SAS working with $15 million companies where we have co-mingled departments that are, for example, doing a COGS function and an OPEX function. We’ve got to split that out. It’s going to impact our gross profit. It’s going to impact our OPEX profile, impact our SAS metrics. So department coding is so key. What departments do we have?
And in QuickBooks, Xero, NetSuite, whatever it is that we code all our expenses to that department level, which makes it easier to create our SAS P&L, which makes it easier to create our SAS metrics and make it a repeatable process.
So it’s not a fire drill every month.
where we download our trial balance, download our P&L. We’re allocating all these expenses all over the place to calculate SAS metrics on the fly. So that’s why chart of accounts, department coding is so key in this process. And if you’re not there yet, there is a quick fix. If you export your P&L out of whatever accounting software, what I do for my SAS clients, if they’re not quite there yet, we look at all the GL accounts and we map those as accurately as possible to what department.
Now, some are co-mingled like travel, but this will get us 80% there to create that SAS P&L while in parallel we’re improving our accounting foundation. So step three, define your COGS departments, OPEX, always these four departments, if not coding to department level, get that accurate. And then you also see people wearing multiple hats. Do you have to do any reclasses on your P&L? Maybe CS is doing product, pure retention product adoption, but they’re also closing expansion deals.
We’re going to have to reclass, we’re going to have to split those expenses between COGS and OPEX, for example. And then finally, data and tech.
Oh, yeah, sure. Just one question as it comes to mind. How often do you see miscoding be the cause for understated costs for metrics like CAC? Do you ever discover that maybe you had customer success as 200 in your last example, and maybe they’re not covering some of the costs of some of the areas that could be considered a cost of acquisition, for example?
Yeah, definitely customer success is the big one. You’ll always see that where they’re sometimes wearing multiple hats. And you’re going to get stung either way. If they’re selling and doing product adoption and you got them up in COGS, then your gross profit is going to be too low. And then your CAC is too good. So you can’t cheat on that, which is the nice thing.
And customer success, really, if you think about the Jason Lemkin definition, pure retention, product adoption, OK, up in COGS. But if they’re doing product, if they’re actually closing deals, they have quota commission, then we’ve got to have a little bit down in sales. Or maybe that’s everything they’re doing, and they’re all in sales. And same thing, services. Up in COGS, you see tech support doing onboarding services, doing CS, CS doing services.
So also see in the COGS area, if you have tech support services, CS, early stage, a lot of those roles can be quite commingled. So getting that correct, because that affects our margins by revenue stream. So it is the Wild West of sales and marketing coding. But again, I always say fully burdened. So every expense attributable back to those departments. So sales, wages, taxes, benefits, commissions, travel, President’s Club, Salesforce, internet expense, all goes back to those departments so we can defend our CAC number. Yeah.
And how would you have that conversation if you’re a revenue leader or someone in finance, you’re not exactly looking at the general ledger, and you’re not necessarily coding expenses? How would you start that conversation internally?
Yeah. So I think for me, each of my department leads have to be accountable for their spend. And that’s where that coding becomes so important. Because what happens in SaaS companies and probably other industries is G&A becomes the dumping ground. We just code all consulting different things to G&A. And of course, as a CFO, I sit in G&A. And G&A as a percent of revenue is an important number for me. So with my department leaders, and often a lot of them say, Ben, send me all those details.
Send me all my expense details for the month so I can see where I’m spending my dollars. So in the budgeting process, forecasting process, we’re holding them accountable to their spend. And everything that they have control over really should be in their departments. So one, they’re accountable. The numbers are correct. And then finally, the metric calculations are correct.
Yeah. No, thanks, Justin. Yeah. Good question. So finally, data and tech. So four key sources of data that I pull in every month. And as I onboard new SaaS clients, this is the data I’m asking for. And sometimes it takes a while to get there. But of course, SaaS P&L, we need our financial data. We need our SaaSified P&L. Two is HRS data. So we need people data. And often I find this is an area that’s often overlooked is, are we tracking our FTE report? FTE by department, important report to see how that’s trending.
You know, headcount rosters updating our forecast model every month. And I’m battling this with one new client right now. They have the like legacy version of ADP and it’s spitting out PDF reports, just horrible reporting. They have no history.
of the number of heads that they have in their company. You know, so just, you know, if we’re tracking revenue per FTE, for example, right? So just that’s part of my monthly financial close process. I go into my HRS system, pull my wage roster, calculate my FTEs, and then it feeds all my, you know, my forecast model and metrics. And then CRM data, right? This can be a big black hole, of course, all that sales and customer data.
If you have a closed one process, outbound motion, CRM data is so key to calculate pillar five, you know, that we have, I’d say, intense data hygiene in our CRM system. And we’ll talk a little bit more about that. And then finally, any app data, do we have any operational data that’s coming out of our application?
For example, if we have usage revenue streams, if we’re getting processing revenue, you know, that there’s data flowing from our app, that’s gonna feed some of my metrics, it’s gonna be feed my forecast model to make my forecast more accurate. So these are the four data sources I ask for every month. And actually I see a spelling error over here, but you know, that we need to figure out, we make this repeatable, consistent every month, even if it’s spreadsheets, right?
You know, it’s fine, but concede it, because this then feeds my forecast, feeds my metrics. So again, you know, Max had that question, write metrics at the right stage. You know, if you’re early stage, growth retention, if you’re above 10 million ARR, I expect a number in each of these boxes. And like I said, I’d expect that maybe you’re segmenting these metrics as well. So write metrics for the right stage.
And then go to market metrics, you know, pillar five, and just touching on this a little bit, you know, but these are the go-to-market metrics, the sales and marketing efficiency metrics that I calculate for my more mature SaaS clients that I calculated as an in-house SaaS CFO. You know, so for one CAC, you know, both gross CAC expenses, you know, and then that gets back to, all right, do we have all expenses properly coded to sales marketing?
Otherwise, you know, this circle is completely invalid, right, because all those sales and marketing dollars feed our gross CAC number. And then also we have to allocate that. You know, CAC technically is new customer acquisition. Now I’ve got some other metrics. I actually have some other metrics behind the scenes here. Yeah, I’ve got my, you know, CAC payback, but I’ve got then my net ARR payback period, which then uses new and expansion revenue. But CAC starts all of this, flows into our CAC payback period, our cost of ARR, aka the SaaS CAC ratio.
You know, so what does it cost to lend a net new dollar of ARR? I love this metric. There are tons of great benchmarks out there, and I’ll show you a slide with a benchmark. LTV to CAC, which I would say is more smaller price point. You see self-service SaaS businesses live and die by their LTV to CAC number, a little bit more variable when you’re targeting enterprise and then the SaaS magic number. You know, and I’m going to calculate all these for my customers, for my clients, and then do we need to segment these?
You know, so real quick on these, of course, CAC cost to acquire new customer CAC payback, the months to acquire to pay back CAC, cost of ARR, the dollar cost to acquire $1 of net new ARR, which then we can further define in the cost of new logo ARR and the cost of expansion ARR, because those numbers are very different and there are benchmarks for those as well. And I just love this because it’s very intuitive.
And also the easiest way to call BS on a forecast or a long-term forecast, look at the bookings forecast in ARR terms, look at your sales and marketing spend and that balance, easy way to just say, yep, this forecast is accurate or this forecast is just way off. Then LTV to CAC and then finally the SaaS magic number, which is the cost of revenue growth. And it’s actually more than that because it, you know, but we could discuss these forever, but common go-to-market CAC metrics.
And of course, context is important, and I’ll show you some real life examples here of my framework, but I’m calculating these, but I’m also looking at how it relates to my overall framework. You know, for example, CAC payback, say my CAC payback is a little bit longer than standard than benchmarks, but how does my retention look? How does my GDR look? Do I have best in class GDR that as a CFO then says, yeah, I can accept a little longer CAC payback. Yeah, I’d like it shorter, but I know I’m gonna pay off that CAC and keep that customer.
But if I have longer CAC payback and actually I’m struggling with retention, right? Then we’ve got a problem. So for mature SaaS, 10 million ARR above, right? I’m calculating these and looking at these all in context. And what are they telling me as a story together?
Ben, do you have benchmarks that you’ve gathered that are proprietary? I know that you can kind of like, depending on who you talk to, which investor or executive, your CAC payback would be less than 12 months in some certain situations. Use that as an example.
Yeah, so I can probably share something after, but I partnered with Ray Reich at RevUp Squared, who I think is gathering the best benchmarks available now, and he’s just finished up his latest survey. But when I benchmark, of course I use his data. I look at OpenView and others, but I think his data is the best because I can benchmark by ACV. So aggregate benchmarks are dangerous. If you’re self-service or targeting enterprise, there are much different standards.
So that’s what drives me nuts on LinkedIn, when people say, hey, if you have a CAC payback less than eight months, that’s great. It’s like, no, it’s not.
It just depends.
So with my clients, you have to benchmark. By ACV, because it’s hard to get more granular than that, they have a big enough data set. But maybe there’s something I can share, and I’ll share a link where you can actually go and get some free benchmarks.
Perfect. Thank you.
So the GTM process, right?
Collecting our data, we’re calculating, we need context, we’re going to benchmark. And of course, every month we’re iterating, iterating, iterating, refining our numbers, making them better, better data sources, better collection, and making this more repeatable. You know, and I also have my fourth annual tech stack.
So I report, I have a tech stack survey.
And initially it was just for finance and accounting. Now it’s expanded beyond that because the office of the CFO, there’s so many tech stacks involved that we need to be aware of, or maybe that we need to implement. So I can send this to you guys.
I have a 40 page report. And this, I say this, this is not a market map.
You know, I get that all the time when I post this and like, hey, Ben, you forgot my software company. It’s like, no, I didn’t, because this is based on user responses. What are SaaS companies using in each of these areas? You know, so for example, accounting, it’s always QuickBooks, Xero, NetSuite, Sage, you know, maybe Dynamics pulling up fifth place, you know, but just tech so important that we know in the back office, you know, so that we can produce repeatable metrics.
And I can share this report too.
You know, just interesting seeing what people are using in each of these areas.
You know, so of course the data, right, sales expense, marketing expense, you know, just jump forward here, you know, our SaaS P&L, that’s why then go to market metric calculations are so much easier if we have our SaaS P&L. CRM data, we’re getting our bookings data. If we’re self-service SaaS, we’re probably not speaking that bookings language. You know, we’re going to take that from our MRR schedule, you know, to create what I call bookings data. You know, how many new customers, what’s that new MRR coming in? What’s the expansion MRR coming in?
So we can still calculate those same metrics. We’ve got logo counts and then our gross margin coming from our SaaS P&L. You know, so you can see on the go to market side, CAC side, so many different data sets and sources to get this right.
And that’s why at a high level, everybody’s like, Hey, Ben, I, you know, I get it. I get CAC, I get CAC payback, but actually to implement it, to refine it, to make it meaningful and all those nuances, you know, I’m adjusting my metrics now.
Say for example, I’ve got subscription and variable revenue streams, right?
I have to adjust my LTV number.
I’ve got to adjust my CAC payback number, right? Otherwise it’s very inaccurate.
Yeah, I won’t read this, you know, just a little more detail on these, these sources, you know, so the biggest data mistake I see in go to market metrics is bookings data. Just we’re not tracking it, we’re poor tracking, there’s no data hygiene. And this is a big roadblock.
If we don’t have bookings data, and that’s our go to market motion, I cannot calculate pillar five.
You know, so even if you don’t have a CRM system, track this in spreadsheets, it’s so hard to go back and recreate this data. You know, so in that closed wild opportunity, we have it tracked by revenue stream. You know, we know what’s the single year value versus the TCV versus maybe it’s a multi year contract. We know on expansion opportunities, what’s the net expansion, I don’t care about gross, right, we feed net expansion into our SAS metrics.
So CRM setup, so key, and hopefully I’m lining up a Salesforce expert soon to hold a webinar in July on that proper CM setup. So this is always a roadblock. You know, and we’re not three months later, we’re not opening up closed one opportunities, right, just that data hygiene, you know, once it’s locked, it’s locked, unless the sales office manager goes in and changes it for some reason. You know, so as these opportunities come down to finance and accounting to invoice to do RevRec, we’re double checking them.
Does the closed zone op in our CRM system match the contract, you know, always finding errors there with our sales team, they’re doing their best, you know, but usually there are some errors, you know, but this is the biggest mistake next is usually RevRec, you know, but you know, and we think about bookings, you know, this is a simple template I use, you know, in every month, day three of close as a CFO, I’m downloading my closed one report, putting in this template, so we can see new AR coming from new customers, expansion, AR, do we have a field services component, other revenue stream, I run my report, I’d reach out to my sales ops manager, what’s your bookings number for the month?
Does it tie? Perfect reset?
Oh, we’re off by $10,000.
What’s going on here, right?
That’s just like our financial data, our CRM data has to be tied out every month.
You know, then of course, we go into the calculation process, you know, handled by your CFO, your FBA team or fractional CFO. You know, so what am I looking for as we calculate these metrics? You know, of course, context, you know, we need more than one point in time as we’re presenting to that board at that quarterly meeting, if I’m saying, hey, my CAC payback’s nine, that’s great, but where’s it trending? You know, so I calculate historical and forecasted metrics every month.
You know, and this is one SaaS company, they’re really big, they had this big freefall, and just things got out of control. You know, so one looking at that calculating, say for CAC payback, you know, historical and forward looking metrics, what’s that context?
Yeah, I’m at 42 months, horrible, but where’s that going? You know, trends, do we see a pattern? You know, upward, then we flatten out, and of course, it’s going down, you know, so that trend, that context, so important for us, and also for our board investors. And then benchmarks, you know, so we calculate these numbers for ourselves, then we’ve got to figure out, do we have internal benchmarks, poor code benchmarks, are we just going to measure ourself against industry?
You know, and I actually created my own SaaS metrics dashboard application where I upload all my metrics for my clients, my students use this, it is available for use, but then color code, how are we doing? Do we have caution? Are we doing great? Do we need to investigate? And for a lot of my early stage guys, not enough data, NED, you know, so that stays as gray.
So calculating, this is again my five pillar metric, and then for example, all right, I’m operating at 90% gross logo retention, the benchmark is 95, you know, we’re close, you know, so we’re monitoring these every month, and you know, and just, you know, we calculate and then we benchmark.
And of course, also trend it, you know, this is CAC Payback again, here’s my benchmark, in this case, I don’t price 17 months, more enterprise, you know, how are we trending against those benchmarks?
So again, I mentioned metrics and together, in isolation, they can be dangerous, we have to look at the whole story, you know, and this is, this is some real-life examples, you know, a lot of red on the board, you know, and I interviewed this one banker, we’re like, hey, how do we get to 10x valuations?
Is that still possible in today’s environment? He’s like, yeah, Ben, it’s possible.
But he’s like, and he knows my dashboard, he’s like, Ben, it takes a lot of green on the board, maybe a little yellow and no red, you know, so in today’s environment, if you want a 10x exit, you know, you’ve got to have a lot of red in these boxes, maybe a little yellow, and you understand why it’s yellow and how to improve the yellow, but red, probably can’t get there, you know, if you have some red on the board, maybe one box with red, but if you have a couple of thread, yeah, 10x, probably not gonna, not gonna hit it.
And then this is where I say SaaS metrics together, that context, you know, here there’s no growth, no investment, yeah, we’re green on the board over here, but that’s probably pretty easy because we’re only spending 11% in sales and marketing, and look at our growth, we have, you know, our velocity has decreased because we’re not spending anything, but our numbers look good, but if I poured more spend into sales and marketing, could I still maintain these numbers?
Yeah, probably not, you know, so again, metrics together.
Here, should we invest more in sales and marketing?
You know, 22%, LTVCAC is okay, CAC payback a little bit longer than I’d like, their cost of AR is pretty good, you know, so looking at these together, they’re doing good at expansion, but horrible at new bookings. Yeah, so again, poor CAC profile, what do we need to do here?
But often, sometimes we have a broken business model, it’s more than just CAC, it’s more than go-to-market metrics to figure this out, you know, do we have pricing issues, structural issues, I just talked, this coaching client, Finland, that I’ve worked with for.
for a couple of years, structural issues in their business to get them to profitability. Of course, we don’t want to burn cash. So again, pause, cut, invest more. With that framework, we can determine that. So helpful tips with go-to-market metrics. This is a big one, sales cycle alignment. So when we’re measuring, say, for example, CAC payback period, what time period are we measuring? If we’re self-service SAS, I may calculate this on a monthly basis, a trailing three-month basis.
But if I have high ACV and say my sales cycle is 12 months, I’m going to calculate my go-to-market metrics over a trailing 12-month basis and do that every month. So sales cycle alignment, really important. And this is where the nuances come into all these SAS metrics. And then, of course, segments of CAC. First, if you’re not calculating, calculate it. And then, how should we segment? How are we managing our business? And how does that tell me as a CFO what data I need to pull out of our system so we can manage our business effectively?
So calculate, and then we’ve got to be specific with our metrics. And this is kind of the leading edge, right? The PLG motion. What if you have post-sale expansion? Is that natural? Is it organic? Or is there a sales motion applied to that expansion? And that can affect your metrics. For example, pre-sales, we acquire the customer, but we’re expecting post-sale expansion. And it’s a little dark here. Who gets credit for post-sale?
If we’re expecting we land the customer at 50 and they’re going to expand to 200 naturally through our product, do we need to adjust our metrics? Do I need to adjust my CAC, my CAC payback, my LTV, and not just measure it at this point of acquisition? So that’s a consideration. Is there a sales motion applied? OK, classic SAS metrics. If not, do we have to adjust our metrics for that? Because then, they’d be a little understated. So benchmarks. And I can probably share some benchmarks later.
But here’s blended CAC ratio, so cost VAR. Again, this is the entire data set. And Ray’s just finishing up his latest data set. But this is saying median SAS companies. It’s taking $1.33 to acquire $1. Top performers, $1 for $1. Now, I like to benchmark by ACV. And this is by ACV. And it follows a trend that you expect. Now, I think this is a little maybe high for this price maybe high for this profile. It should probably be down here in the $0.60 range. But then, this makes sense, right?
That higher price point, longer sales cycle, more expensive to land that ARR. So I like to benchmark. And this is top quartile, for example. I like to benchmark my clients by ACV. What ACV do they fall in? And then, look at those top quartile performers. So you can find your benchmarks if you go to saskpibenchmarks.com. You can enter some of your data, your profile, your demographics, and get the probably not the latest data set yet that’s not released, but the current benchmarks that I’m referencing here.
So I think, yeah, that’s it for the last slide. So again, I went through a lot of content here in my metrics framework. And I think Robert can definitely go through these slides if people would want them. But yeah, happy to answer any questions on finance metrics and accounting. Looks like maybe there’s some questions. Ron, yeah. For post-sale expansion, do you recommend adding that to CAC or COGS? So yeah, post-sale expansion really gets into, for me, did CAC stop at the time of acquisition? Say, for example, in a PLG motion.
post-sale we’re having additional revenue added and how does that affect my metrics? So that’s how I’m looking at it. It’s not, I’d say changing my cost structure but it’s really getting to what time periods do I need to consider for that type of motion? Or if it’s time of acquisition and then there is a direct sales motion applied to it, then that’s classic SAS metrics calculation, cost of ARR on the expansion side to figure out my cost of expansion.
Great, sorry if there’s any background noise, I’m traveling. Just to clarify my question, so if in a post-sale expansion, if there’s additional commission, we’re paying like an internal rep, would that cost go back into CAC typically?
Yeah, yeah, so yeah, like if you’re like, hey, you try not to sell too much so the new business guy lands the deal and then six months later, my expansion team expands them, they get commission and sometimes you give a little kicker back to that new sales guy. You know, unless material, I didn’t really adjust anything there, you know, that that just still went to my CAC and then the commission went to, you know, on the account management team.
You know, I am splitting that up but just getting it in the right buckets but sometimes you see some timing differences depending on how your commission structure is set up.
Okay, cool, got it, thank you.
Yeah, happy to answer any questions.
Got a quick question.
Where do you recommend calculating ARRA CV from? Is that something that you see coming from the accounting software that’s audited and all that or operationally from Salesforce or CRM? Yeah, yeah, good question.
I mean, at, you know, the easiest level, you know, is if say we have gap in place, accrual accounting, rev rec, like say ARR, you know, at a most basic level, right? We take our MRR times 12 and sometimes I got some pushback from that.
It’s like, hey, you know, there are debits and credits and in credit notes.
It’s like, yeah, but that’s the easiest way to get to ARR. And then, yeah, CRM, if you’ve tracked every single deal from day one of your company, you can build up your ARR schedule that way too. But a lot of times the data sucks. We didn’t start it from day one of the business. You know, but you could, in theory, you can recreate my current ARR level, you know, from that and calculate retention off of that.
Or, you know, if you don’t have that history, like if you had every, you know, account in there and you’re somehow tying ARR back to that, you can, but it gets tricky. So usually I’m taking it out of my accounting data.
Okay, thank you.
Yeah. Yeah, happy to answer any questions. And then plus I’m hosting, if you have any questions now, maybe later I’m hosting a SAS Metrics AMA on Friday in my community. So I’ll pass those links on later too, if anything comes up down the road.
This has been great, Ben. Any final questions from the group here? If not, I’m going to reach out to me. If not, I think it’s just really great to get everybody thinking about the metrics and the quality of the data and the benchmarks and understanding how you’re performing against even your own benchmarking. We will have a link to this recording and we will have the slides on that link in the portal. So thank you, Ben, very much for this information. It’s been very enlightening. And we will be sending out a survey.
If you can just hang out for a second and fill out the survey for the quality and for future salons that we’re going to be hosting, that would be great. And Ben and I talked before, if you have any questions, feel free to reach out to him directly. And again, until next time, we look forward to meeting up with everyone. Thank you, everyone.
All right, thanks guys, take care.