The Finance Department Every SaaS Founder Needs

Software company owners generally come to us trying to solve two problems: managing a subscription based business and handling deferred revenue.  We have great systems in place to manage both.  This video tells you the metrics we’ll manage and interpret for your software company so you can achieve your growth goals.

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Software company owners generally come to us trying to solve two problems: managing a subscription based business and handling deferred revenue.  We have great systems in place to manage both.

There is a commonly accepted set of SaaS metrics that software companies use to manage subscription growth.  They are the cost to acquire a customer, the lifetime value of a customer and the churn rate

We measure the cost to acquire a customer as the trailing 12 months sales and marketing spending divided by the last 12 months new customers acquired. We use trailing 12 months because it gives us a good indication of how our annual spending is generating new customers. We’re looking for that number to trend down over time

The lifetime value of a customer is the average gross margin dollars  per customer per month multiplied by the number of months a customer is active. This is the total cash flow each customer delivers to your business.  We want this to be at least three times the Cost to Acquire a Customer.

Here’s a pro tip: start tracking the date each customer starts with you.

Churn rate measures how well a company retains subscribers. We measure it as the number of customers lost over the past 12 months divided by the number of current active customers.  We want this percentage to be at or below industry benchmarks

All subscriptions paid upfront are required to be deferred over the life of the subscription. We use software called Flowrev to capture deferred revenue at the invoice level.  

This not only enables us to properly capture and report deferred revenue but also lets us project how much revenue is going to be recognized over time.  This is very useful when we plan… if a customer sets a $5 million sales goal next year, and we know $1 million is already going to be recognized, then we just need $4 million of new sales to hit the $5 million target.

Calculating these metrics and helping you monitor and understand them is one of the many things we can do for you. Click the Services button below to learn more about our offerings.

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