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Tracking KPIs for SaaS Companies

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High-growth SaaS companies have to be rigorous in their planning. They need to allocate resources strategically. They need to be able to quickly run different scenarios in order to understand the impact of changes to their business. 

For example, you are the CFO of a SaaS business. You’d like to update headcount and ARR under contract models to reflect Q1 actuals. You need to incorporate revised pipeline forecasts from sales. What does this mean for your Q4 cash position? In the world of SaaS, this one “small” change triggers a waterfall of updates consuming hours, days or even weeks. That is time you simply do not have. 

As with many businesses, SaaS companies rely on Key Performance Indicators (KPIs) to understand how the business is performing. But what KPIs should you be tracking?

10 KPIs for SaaS businesses

Here are 10 KPIs you should track:

  1. 1. Customer Churn Rate – The percentage of customers lost in a given time
  2. 2. New Buyer Growth Rate – The speed at which you gain new customers over defined periods of time
  3. 3. Lifetime Value – The revenue from a customer over the retention time period
  4. 4. Customer Acquisition Costs – The amount of money a company speeds to get a new customer
  5. 5. Net Burn Rate – The Net Cash spent in a specific time frame (usually monthly or normalized to a year)
  6. 6. Runway – The time that a startup has before they run out of finances
  7. 7. Average Revenue Per User (ARPU) – The average revenue generated per customer (either monthly or annually)
  8. 8. SaaS Quick Ratio – This compares revenue added (new business) vs revenue lost (churn)
  9. 9. Monthly Recurring Revenue (MRR) – This is the monthly revenue from customers with a subscription
  10. 10. Total Addressable Market (TAM) – The market size of a product/service in value that the company can achieve

Workday Adaptive Planning is a strategic resource to help you uses up to date data to drive your KPI models. 

How SaaS Companies use Workday Adaptive Planning

  • Subscription waterfalls – forecast new and renewal ACV/ARR, retention and churn by segment
  • Sales rep productivity – plan sales rep capacity, quota coverage and territories
  • Cohort modeling – model subscriber cohorts, retention, lead conversion and contract ramping
  • Professional services – plan bookings, backlog hours, billing rates  and utilization by role
  • 606 revenue and commissions amortization – model complex revenue and commission amortization profiles based on contract duration
  • Workforce planning – plan and reconcile head count plans to manage a growing workforce
  • Vendor-level spend – budget and actualize IT, consulting, marketing and other material expenses at the vendor level

Read more from this series:

Workday Adaptive Planning in Use: A Fireside Chat with Ben Hart, CFO of Texans Credit Union

Workday Adaptive Planning Customers See 249% ROI

Unlocking Success: Harnessing Customer Satisfaction Metrics with Workday Adaptive Planning

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FP&A Done Right: 3 Steps for Selecting your KPIs

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This is a guest blog post from our partner Workday Adaptive Planning, explaining how to identify the most appropriate KPIs for your organization.

Now more than ever, companies that are unable to adapt or pivot easily to adjust to changing market conditions don’t just risk falling behind. They risk their very future.

But business agility isn’t something you can implement overnight. It takes a modern, multifaceted planning environment—one that isn’t weighed down by static, legacy planning processes characterized by spreadsheets, siloed data, outdated annual plans, and stale historical snapshots.

Today, forward-thinking CFOs and their FP&A teams understand the need for nimble, data-driven financial modeling powered by cross-departmental collaboration and encompassing a panoramic view of the business—one where planning happened not just within finance but throughout the enterprise. This is the definition of modern approach to planning.

And it’s exactly what businesses need right now.

In a recent blog, we outlined the three key steps that help you lay the groundwork for a modern planning model within your own organization. To realize the full potential of that groundwork, you’ll also want to engage a series of key initiatives that will amplify your ROI and increase the velocity of business transformation. Here we look at the first of these: identifying your critical KPIs.

When everything is important, nothing is important

When everything is deemed critical, how can you be expected to prioritize? It’s impossible to effectively plan or make decisions quickly when it’s unclear what is truly driving business success. Bring those mission-critical KPIs to light, however, and you can quickly get everyone aligned around them.

But before homing in on these metrics, it’s imperative to step back, take a look at the entire organization, and recognize that performance is tracked differently in each department and team. Your core KPI model should take into account different flavors of measurement strategy across departments, recognizing the metrics that weave through multiple departments. This will help ensure that planning is collaborative and comprehensive, and that tracking progress and reporting means the same thing to all the players involved. The biggest plus in all of this? This shared measurement strategy establishes company-wide ownership and direction.

To help you isolate your organization’s KPIs (and ultimately to plan better), consider these three steps.

1. Partner with operational leaders to uncover their mission-critical KPIs.

Rather than try to guess what functional leaders care about, take the time to sit down with those key stakeholders and walk through how they define success. What does their measurement strategy look like? How do they currently track and manage their own progress? What are their data sources? Whom are their reports important to? Do they use specific language or terminology that might mean different things to people in other departments? Be as thorough as possible in fleshing out their measurement strategy and any processes they have in place to support it.

2. Keep it simple.

People can get caught up in attempting to adhere to KPIs that aren’t easily tracked or aren’t even truly indicative of performance. Avoid establishing complicated processes or adding new, hyper-focused metrics to the mix. Yes, your goal is to maintain accuracy, but you need to balance it with minimum resistance. The last thing you want is to get lost in data and complicated algorithms, forcing you in the end to have to manually follow up with gatekeepers when the time comes to pull a report.

3. Establish a reporting system.

After isolating the necessary KPIs, you’ll need to set up some workflows around reporting. What are the tools you need to access and generate a KPI report? Are these tools accessible and easy to use for all stakeholders? What are the bottlenecks, and who are the gatekeepers holding back the flow of KPI reports? Ensure your reporting operations are accessible, easy to use, and accurate enough to give you a true snapshot of your organization’s progress—without data overload.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: The Role of KPIs in Driver-Based Budgets

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This is a guest blog post from our partner Workday Adaptive Planning, on why finance teams should focus on KPIs and business drivers.

Gone are the days when business leaders were narrowly focused on just the net cash flow or balance sheet. Modern finance pros are asked to track not only a lengthy list of metrics, but also KPIs beyond the traditional finance arena. The old adage is, “You get what you measure.” When managers are held accountable for attaining or exceeding KPI targets defined by the executive team, their actions and decisions become aligned to the executives’ strategy.

Why the focus on KPIs and business drivers? Well, more leaders are realizing that to stay competitive and agile, their formulated strategies need to be managed and executed and that traditional budgets are no longer cutting it. Creating detailed, upfront financial projections for the next year and allocating budgets and planning inventory to cost centers no longer makes sense in today’s rapidly changing business environment. Instead, staying nimble and strategically savvy means embracing active planning and driver-based budgets. These driver-based budgets are categorized by:

  • Budgeting and planning in smaller batches with horizon-adjusted precision
  • Allocating resources in a fast and flexible manner
  • Tying budgets and planning inventory to outcomes rather than cost centers

Identify the KPIs that drive your financial results

Most organizations have a company-wide set of standardized and consistent metrics they track. But what are the KPIs that truly impact the company’s financial performance?

The answer will vary from industry to industry and company to company, but identifying the right drivers means considering the entire operational arc of the business. For instance, you might have drivers from:

  • Pipeline or funnel: prospective customer leads, first meetings, opportunities, sales generated pipeline, add-on revenue, channel sourced pipeline
  • Sales: total customers, ramped representatives, average revenue per deal, current quarter pipeline, new logos, future quarter pipeline
  • Customer success: customer satisfaction score, at-risk customer retention, cancellations, billable hours, time to value, average hold time
  • Finance: manufacturing costs, freight and distribution, free net cash flow, revenue per headcount, cost per headcount
  • Marketing: website visits, event attendees, new vs. returning leads, social followers, database size, earned media

Shift the conversation

“Did you hit your numbers?” That’s a question anyone who’s worked in a static planning environment has probably encountered. But with a driver-based budget and active planning, the psychology around targets actually shifts. Instead of thinking in operational silos and individual or department wins, the conversation becomes more integrated thinking about end-to-end business processes across the silos. Rather than hitting a static target, people are working to make sure certain drivers are meeting or exceeding expectations, to help fuel future success and growth at the organization.

Sometimes, that subtle but powerful shift can be hard for executives to wrap their heads around. But once the C-suite is sold on driver-based budgeting, the results usually speak for themselves. And many execs find that the forward-looking approach of driver-based budgets and KPIs actually aligns better with how they operate: with an eye toward the future, rather than toward the past.

Stop forecasting to the end of year

With an annual plan or budget, fiscal year end Dec. 31 is the end line. But business doesn’t actually come screeching to a halt at the end of the fiscal calendar year, and all of the effort required to put together an annual budget can be so onerous and complicated that it might take months in advance to assemble. That means some teams are racing toward an artificial deadline with little to no visibility into what the budget will bring even a few months into the future. Sounds like a nightmare, right?

We’re not arguing to do away with the annual plan. But with a driver-based approach, it’s easier to also create a rolling financial forecast—a roadmap for the next quarter or six months or 12 months, no matter what point you’re at in the fiscal calendar. Creating a rolling financial forecast isn’t nearly as time-intensive or intimidating as you might think when you have the input variables and parameter supported by an automated system. Because this forecasting happens more frequently and because it’s based on drivers and KPIs—rather than every single granular data point at the finance team’s fingertips—a rolling financial forecast can be both quick and sophisticated.

Are you ready to dramatically increase the agility, alignment, and accuracy of your company’s budget? It starts with shaking free of the status quo—static planning, traditional budgets, myriad metrics—and focusing on the business drivers and KPIs that will actually shape the future financial performance.

This blog post was originally published on the Workday Adaptive Planning blog and appeared here.

Check out more FP&A Done Right posts here:

FP&A Done Right: Predictions of “Extraordinary” Growth This Year

FP&A Done Right: Collaborate More When Planning

FP&A Done Right: Achieve More Reliable Financial Forecasting

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