Advanced SaaS Financial Metrics Beyond ARR

You’ve heard of MRR, CAC, churn and other basic metrics. Still, as your SaaS startup scales and enters growth mode, these metrics no longer adequately capture the nuanced complexities of a larger, more diverse consumer base and a more advanced business model.

Hence, as your SaaS startup grows, more advanced metrics are needed to tell its true story and track growth, customer retention and multiple revenue streams.

The Limitations of Basic SaaS Metrics

Basic metrics are just that — basic. While they serve their purpose in the early days of your startup and continue to play a role throughout various stages of your startup’s evolution, they should be complemented with more advanced key performance indicators as your startup grows for several reasons. For instance:

• Basic metrics can mask underlying problems that must be addressed or create an incomplete view of your startup’s performance. For instance, tracking monthly users can hide problems, like low adoption or engagement.
• Prioritizing favorable basic metrics can lead your startup to prioritize short-term wins rather than long-term health.
• Basic metrics can result in missed opportunities and a failure to capitalize on trends, needs and various market segments.

Once you get to Series B fundraising and beyond, investors are looking for more than just basic metrics, but financial data that can tell your startup’s story.

Cohort Analysis: The Foundation of Advanced SaaS Metrics

Cohort analysis is the practice of grouping customers based on shared characteristics — and then tracking customer behavior over time to better understand retention, churn and other metrics that your startup should be monitoring when telling its story. The goal of cohort analysis is to identify trends and patterns within these consumer groups so that more informed decisions can be made about product development, marketing and overall strategy.

Essentially, cohort analysis offers an impactful way for SaaS startups to gain actionable insight into their customer base and make educated decisions on how to improve performance. One example of how cohort analysis can work for an SaaS startup is tracking retention and churn after a new feature or service is introduced.

Implementing Effective Cohort Tracking Systems

How do you implement effective cohort tracking in SaaS accounting? Make sure that such systems include essential data points, like:

• Customer acquisition
• Engagement
• Retention
• Advanced revenue metrics

It’s important to assess other factors, such as feature adoption, user journey paths and the effectiveness of marketing campaigns.

Unit Economics 2.0: Beyond Basic CAC and LTV

Advanced customer acquisition cost (CAC) and LTV metrics go beyond basic marketing and sales costs and consider all the unique dynamics involved in product-led growth. Metrics such as product virality, customer lifetime value, time to value, annual recurring revenue, monthly recurring revenue, activation rate, churn rate and retention rate are advanced data points that help assess the impact of earned consumers.

On a similar note, LTV models can be grouped by demographics, firmographics, behavioral segments, psychographic segments and other categories to allow for more tailored marketing, resource allocation and product development based on specific customer segments. Factoring in customer acquisition cost at a segment level further enhances these models by highlighting profitability variations across different audience types.

Payback Period Variants for Different Business Models

In most basic Saas models, payback period mostly focuses on CAC and revenue streams from monthly subscriptions. However, usage-based pricing strategies introduce variability and account for payback period calculations that consider fluctuating usage and how that impacts associated revenue.

Furthermore, a risk-adjusted payback period is calculated by incorporating risk factors into the traditional payback period calculation. Compared to the traditional payback period, the risk-adjusted payback period involves adjusting expected cash flows by a discount rate to reflect any revenue uncertainty. Different customer segments may require different payback period targets.

Expansion Metrics: The Growth Multiplier Effect

Expansion efficiency gauges how effectively your startup can grow and scale its operational efficiency. It often weighs factors such as market reach, average revenue, revenue growth, and profitability while working to minimize costs and optimize resources along the way. For instance, expansion efficiency often involves the potential to enter new markets, launch new products or services, or even acquire other companies to accelerate sustainable growth.

A part of this is the logos-to-revenue ratio, which helps measure the relationship between your startup’s total revenue and the number of customers that it serves. Essentially, it helps your startup gauge how well it retains customers and generates revenue from this base, and is an attractive metric for investors to understand the inner workings of your business and its future potential.

Product-Led Growth Metrics for Expansion

Higher feature adoption rates tend to lead to increased revenue expansion via upselling and cross-selling, underscoring the importance of tracking this metric when forecasting.

Another scoring methodology that helps predict expansion is defining and tracking engagement events. Look into assigning scores to each tracked event. Higher scores tend to reflect deeper engagement, and vice versa. Assess engagement scores and look for patterns between desired outcomes.

Time-to-value (TTV) is another expansion indicator, which reflects how quickly consumers realize a product or service can drive customer satisfaction, retention and opportunity for expansion. The shorter the TTV, the faster they realize your startup can achieve this, which leads to better engagement.

Cash Efficiency Metrics for Scale-Stage SaaS

Go beyond burn rate and consider tracking cash conversion score, or a measure of how efficiently your startup converts invested capital into ARR. The higher the score, the better your startup’s performance.

Other working capital efficiency metrics for scale-stage SaaS businesses you’ll want to track include basics like monthly recurring revenue (MRR) and ARR, as well as more advanced ones like CAC, LTV and days sales outstanding.

Operating Leverage Indicators

Some operating leverage indicators you want to be aware of include:

• Revenue-to-headcount ratio: This measures your startup’s efficiency and productivity per employee.
• Incremental margin analysis: This is a decision-making tool that weighs the profitability of additional sales by focusing on changes in revenue and costs reflective of said changes.
• Scaling coefficient: This is a parameter that describes how one variable changes with respect to another.

Investor-Ready Metrics Dashboards

When you’re ready to seek funding, you should create dashboards that offer clear visuals, real-time data and customizable views to allow investors to quickly and easily gain insight into your startup. Some features to consider include:

• Real-time data
• Custom views
• Data blending
• Trends

Additionally, your dashboards should be presented in a way that tells a financial story to create more meaningful content for investors.

Implementing Advanced Metrics in Your Organization

Tracking advanced SaaS metrics requires a more robust data infrastructure, complete with data collection analysis and reporting capabilities. You’ll also need to be sure that this infrastructure can handle large volumes of data and can analyze current data against historical data.

For growing startups, implementing advanced metrics is something leaders often need assistance with. It’s often a mix of specialized roles and cross-functional collaboration to uncover the metrics that matter most.

Take Your SaaS Financial Strategy to the Next Level with Graphite

Sophisticated financial metrics can help you dig deeper into the inner workings of your SaaS startup, identify problems and implement solutions. Graphite Financial is here to help implement the systems that can identify these advanced metrics for your growth-stage startup. Contact us today for more information and to schedule a free consultation.

FAQs

How do advanced SaaS metrics differ from traditional GAAP reporting?

Advanced metrics are more forward-looking and dive deeper into startup performance. Such metrics typically assess growth potential, user engagement and your startup’s overall health, aiding in better decision-making.

At what company stage should we implement more sophisticated financial metrics?

Your startup should consider implementing more sophisticated financial metrics before Series B fundraising.

What data infrastructure is required to track advanced SaaS metrics effectively?

Tracking advanced metrics requires a more robust data infrastructure, complete with data collection analysis and reporting capabilities.

How often should growth-stage SaaS companies review their financial metrics?

Consider reviewing financial metrics at least every month so they remain as real-time as possible.

Which advanced metrics are most important for presenting to venture capital investors?

Some of the most impactful metrics to investors include churn rate, LTV, CAC, capital conversion rate and more advanced operating indicators like incremental margin analysis, TTV and scaling coefficient.

How do advanced metrics requirements differ between B2B and B2C SaaS companies?

The main differences are due to the varying sales cycles, customer needs and product complexity. B2B tends to focus on more long-term relationships, while B2C tends to facilitate faster transactions.