They say that if you build a better mousetrap, the world will beat a path to your door.

But the reality – especially in SaaS – is that no matter how good your product is, you have to actually run your SaaS business too. You can’t just be a developer.

There are probably hundreds of killer apps languishing on the hard drives of people with no sense of where to start with their subscription business, and no sense of how to keep making money instead of having to close up shop.

In this article, you’ll learn the top two things to keep track of when you’re running your books. How well do you know them?

SaaS Finance: The SaaS Metrics You Should Be Monitoring

1- Revenue

Revenue for subscription-based software companies is most often measured with the concept “MRR” for “monthly recurring revenue” or “ARR” for “annual recurring revenue.”

Because so many SaaS companies start up without anybody at the controls having an education in economics or accounting, surprisingly many people miscalculate their revenue and end up misleading the public, their investors and themselves.

Without revenue recognition, you’re basically in the dark for any kind of forecasting and planning of your cashflow.

Only with a couple of months or years of revenue and a finance team under your belt can you really guess accurately where you’re going to be in the future.

All you need to do to calculate MRR is see how many people in any given month are actually paying for your product.

If you have 100 people paying for the $10 plan, and 150 people paying for the $20 plan, your total revenue is $1000 for the first plan and $3000 for the second plan – so your monthly recurring revenue is $4000.

Watch Out for Overcounting

Note that you can’t count free users in your MRR!

You can create reports showing how many free users end up switching to paid, and make estimates based on that future amount, but your MRR is what people are actually taking out of their wallets and giving to you on a monthly basis.

Be sure as well that you don’t count one-time payments. Suppose everybody on the $20 plan has to pay a $30 equipment fee when they get signed up.

Definitely don’t make the mistake of counting them as $50 customers, because the next month they’ll only give you the $20 that’s due for the plan.

Finally, sometimes there are promo rates or discounts that get applied in the middle of a contract.

Definitely make sure that you’re correctly counting any kind of promos that you might have used to incentivize people to sign up, because without those, you can’t predict the same number of customers in the future.

2- Customer Acquisition Cost and Payback Period

This is kind of cheating because these are two separate terms, but they really do go hand-in-hand.

You are probably spending a certain amount of money through online advertising, paying influencers, or hiring commenters to spread knowledge of your product.

Whenever you spend money on getting customer attention, you have to earn that back before you break even or make a profit.

The money you spend divided by the customers that you attract with it is the customer acquisition cost, often abbreviated as CAC.

Real life is often a lot more complicated, but let’s make up an example to illustrate.

On day 1 of launching your product, you spend $1000 for a popular YouTube channel to do a shoutout for your service. Using your tracking tool, you discover that over a period of one month, ten new people signed up.

Therefore, your customer acquisition cost for that marketing campaign was $100 per customer.

Figuring Out Your Payback Period

Let’s say then that each new customer signs up for the $20 a month plan, recurring monthly. After five months, each of them has spent a total of $100, and you’ve broken even.

That’s known as the payback period – the time it takes between the customer deciding to buy your product and them paying you enough money to recoup your losses from acquiring them in the first place.

A long payback period can mean that you’re skating on thin ice.

Even if your customers are locked into contracts with a great lifetime value to cover the payback period, it’s possible that you’ll experience some kind of difficulty rolling out features or have to suspend operations briefly, giving the customer incentive to leave in an early stage and never end up making you money.

Takeaway: How Much is Your Time Worth?

The biggest mistake that people make over and over when estimating these metrics is forgetting that time is money too.

As a founder, you might not be taking any salary at all and just pouring your own work into developing and promoting the product.

You could spend a week going into Facebook groups or online forums and making thoughtful posts that just happen to mention your product, and you might come out of it thinking that you’re getting away with a zero dollar customer acquisition cost because you didn’t pay anybody to do it.

In that case, you’re valuing your own time at $0/hour.

It definitely gets difficult when you have a couple of people volunteering to promote for free as well as going through traditional paid channels.

But doing the work to actually estimate how much time and money you’re spending on each customer is going to be worth it in the long run.

That data will let you more accurately understand which acquisition strategies it makes sense to keep doing or drop in the future.

59 Examples of Top SaaS Finance Data Metrics

Conclusion

Of course, one article can’t take the place of years of experience.

If your SaaS team doesn’t have a dedicated finance specialist, you should strongly consider bringing one on.

They know that even these metrics are just the tip of the iceberg, and they’ll be able to analyze your pricing, churn, and fundraising as well with great precision.

Perhaps you already knew everything in this article – if so, that’s great.

But for those of you who realized that they might want to pay more attention to one of these metrics, it might be time to hit the brakes a bit until you can develop your financials a bit more.

The more time you spend thinking about how your business can stay sustainable, the more time you’ll have to share that better mousetrap with the world.

Author:

Yassir Sahnoun is the founder of YassirSahnoun.com. He helps SaaS companies like Castbox and FluentU attract sales using content strategy, copywriting, blogging, email marketing, & more. If you want to up your content marketing game, you can schedule a free discovery call with Yassir by clicking here.