SaaS Reporting: Guide for Venture-Backed Startups

Don’t think of financial metrics as a tolerated inconvenience that your SaaS startup must endure. Instead, think of SaaS reporting as a strategic asset that can help your startup gain an advantage over its competition. In fact, SaaS reporting is critical for navigating fundraising rounds, investor due diligence and growth-stage scaling. It’s essential to go beyond surface-level metrics to uncover data for advanced reporting, which helps drive better overall decision making.

Most SaaS startups track metrics, but is yours tracking the right ones? In this post, we’ll help your SaaS startup and its financial leaders understand why reporting metrics are so crucial to success. Read on to learn more or contact Graphite Financial today.

Why SaaS Reporting Matters More at the Growth Stage

Investors want to see sophisticated, real-time insights that go beyond basic bookkeeping to monitor your SaaS startup’s growth, ensure compliance and manage instruments. Venture-backed startups must regularly assess their progress and provide data that meets investor expectations, while also maintaining open communication with the board.

Recurring revenue models tend to be more complex than traditional business models, especially when it comes to deferred revenue, churn and revenue recognition. Traditional financial reporting often overlooks these more advanced variables, underscoring the need for more robust reporting. This is especially important when you consider that Series A investors want to see signs of progress and metrics presentations that go beyond potential.

Poor reporting can cost your startup. It can create risk in fundraising, lead to disputes in valuation and hamper your strategic planning. It’s a big part of why advanced reporting is so important, especially at the growth stage.

Investor Expectations at Each Funding Stage

Investor expectations vary at each stage, evolving from judging a startup based on potential to a desire to see evidence of growth and, eventually, market share. Here’s a look at how investor expectations change as your startup evolves:

• Pre-seed and seed funding: Investors are looking for potential more than anything. Investors are judging your startup based on its concept, its team and its overall vision.
• Series A funding: Investors want to see a proven business model. Unlike pre-seed and seed funding, where investors judge based on potential, investors look for evidence of a product-market fit and gauge existing metrics to determine scalability.
• Series B funding: Investors assess whether the proven model has scaled and if market share is expanding.
• Series C funding: With Series C funding, investors want to see that your startup has gained market share and is poised for further expansion through growth and potential acquisitions. They want to see proven financial performance, solid revenue growth and a strong overall market position.

The Cost of Fragmented or Manual Reporting

If your startup is relying on spreadsheets, siloed data or inconsistent reporting practices, it could be costing you. Manual and siloed processes lead to errors, which can result in delays and outdated insights that can undermine decision-making. Furthermore, you may find that you’re not in compliance with ASC 606 revenue recognition standards, which can lead to financial and reputational harm. Fragmented reporting often results in missed growth opportunities and weakened investor confidence for SaaS companies.

The Core SaaS Metrics Every Finance Leader Should Track

So what metrics should your SaaS startup be tracking? It’s essential to delve beneath the surface and focus on the metrics that can drive informed decision-making. It’s best practice to organize metrics based on category, such as financial health, growth and retention, and track these metrics over time rather than just as a point-in-time snapshot. These are your key financial metrics.

Revenue Metrics—MRR, ARR, and Expansion Revenue

MRR, ARR and expansion revenue are three key revenue metrics that your SaaS startup should be tracking.

• MRR: There are various types of monthly recurring revenue that you should be tracking. New MRR is revenue from brand-new customers, expansion MRR is additional revenue from existing customers, contraction MRR is lost revenue from existing customers and churned MRR is revenue lost due to cancellations.
• ARR: Annual recurring revenue calculation nuances involve clarifying what counts as usage-based, annual contracts or mixed billing cycles.
• Expansion revenue is extra income that your SaaS startup earns from existing customers via upselling or cross-selling. It’s a key metric that demonstrates how well your startup nurtures relationships and provides evolving value that grows average revenue per account.

Customer Economics—CAC, LTV, and Payback Period

Is your SaaS startup sustainable and scalable? Metrics such as customer acquisition cost, customer lifetime value, and payback period are good indicators.

• CAC is the total cost of all expenses your startup incurs to gain a single customer. It consists of sales and marketing costs, ad spend, agency fees and more. It’s typically calculated either quarterly or monthly and helps show how efficiently your startup is able to earn new customers. Tie CAC analysis directly to customer acquisition efforts and sales efficiency.
• LTV:CAC ratio demonstrates how much profit a customer generates versus how much it costs to earn them. A good LTV:CAC benchmark is typically 3:1, meaning your startup earns three times the amount it costs to initially acquire them.
• CAC payback period is the number of months it takes for your startup to recover the cost of acquiring a new customer. A good CAC payback period for an SaaS startup is typically 12 months or less.

Retention and Churn Metrics—NRR and Logo Churn

The third category of key SaaS metrics are retention metrics:

• NRR is a crucial metric for demonstrating sustainable growth without requiring new customer acquisition. It measures the percentage of recurring revenue retained from existing customers over time, while factoring in losses from churn and downgrades, as well as gains from upsells and cross-sells. A good NRR is anything above 100 percent, which signals solid growth from existing customers. Anything below that tends to be a concern and indicative of revenue loss from churn or downgrades. Improving NRR starts with customer success and customer satisfaction at every touchpoint.
• Logo churn: There are various types of churn that your startup should be tracking. Logo churn is defined as the percentage of customers who cease using your service or cancel their subscription within a specified period. Logo churn tracks lost customer accounts rather than lost revenue, helping your startup identify how many customers are leaving. By tracking this metric, leaders can identify and correct issues.

Building Effective SaaS Dashboards and Reports

The best practice for building effective SaaS dashboards and reports is to ensure they’re audience-driven. That is, make sure that different reports are made for executives, investors, board members and teams that focus on the data and metrics that matter most to them. Ideally, you can integrate your different billing and financial systems to create a “single source of truth” and have all of your data in one spot. This connects finance with customer relationship management systems and product analytics so performance metrics align.

Tailoring Reports for Board Meetings and Investor Updates

You should create a similar presentation deck for board meetings and investor updates that includes ARR, MRR, churn analysis, burn rate, runway and growth trajectory. Not all of your metrics will always be positive, so it’s essential to present any challenges in a transparent manner and detail plans to address weaknesses. Keep board and investor presentations concise, focusing on high-level metrics that matter most and aim to tell a compelling financial story about your startup to venture capital stakeholders.

Integrating Data Sources for Real-Time Visibility

Integrating billing platforms, CRM systems and accounting software can help eliminate data silos and keep all of your information neatly in one, easily accessible place. As your startup evolves, it should migrate from manual spreadsheets to automated dashboards where data can be accessed in real-time. This helps facilitate more proactive decision-making.

The Role of Forecasting in SaaS Reporting

Forecasting helps transform static reporting into a dynamic planning tool that facilitates scenario analysis and inspires strategic decision-making. It’s a forward-looking complement to historical reporting that assesses what has happened and helps determine what will happen next. Forecasting also helps support pricing decisions, hiring plans and resource allocation. It can also help evaluate the impact of decisions before they’re made.

Using Reporting to Manage Burn Rate and Runway

Burn rate refers to the speed at which a startup spends its capital, typically before it becomes cash-flow positive. It’s another important metric to track, as it has implications on other variables like hiring, expanding and capital efficiency. Accurate reporting enables proactive conversations with investors about topics such as bridge funding or runway extensions, which are central to venture capital planning for a SaaS business.

It’s also best practice to keep a 13-week cash flow forecast as a tool within your broader SaaS reporting that can help prevent cash shortfalls, manage liquidity and prompt faster decision making.

Common SaaS Reporting Challenges and How to Overcome Them

There will likely be challenges to your SaaS startup’s reporting. One of the biggest obstacles is the existence of data silos across various teams, which can be overcome by centralizing data into a single system to promote transparency.

Other challenges include issues with revenue recognition and getting stuck in manual reporting processes. It’s essential to comply with ASC 606 regulations when tracking revenue to ensure consistent and accurate reporting. Furthermore, as your startup grows and its financial reporting becomes more complex, you should transition to more automated reporting methods to better streamline data in real-time and minimize human error, while keeping a clear view of gross margin, customer value and sales efficiency.

Transform Your SaaS Reporting into a Strategic Advantage

Are you ready to transform your SaaS reporting into a competitive advantage for your startup? Graphite is here to help. As a full-service financial accounting provider that specializes in working with startups, we’ll help you define the right metrics, the right audience and the right infrastructure for your SaaS startup to build investor confidence, enable faster decision-making and support sustainable growth.

Contact Graphite today for more information on how to elevate your financial reporting and to schedule a consultation.

FAQ

What is SaaS reporting and why is it important for startups?

SaaS reporting is the process of continuously tracking and assessing key performance indicators to better understand your startup’s financial health, customer behavior, growth potential and more. Reporting is key to helping startups make more informed decisions so they can optimize spending, secure funding and ensure long-term viability by identifying problems and implementing fixes sooner. Some of the key performance indicators that SaaS startups should track to best understand the business include MRR, churn, LTV and CAC.

Which SaaS metrics should I include in my board deck?

Your board deck should focus on the metrics that highlight financial health, growth and efficiency metrics. These include MRR, ARR, net revenue retention, churn, CAC and LTV. A good board deck highlights performance against goals and operational efficiency, while also highlighting core metrics.

How often should SaaS startups update their financial reports?

SaaS startups should consider updating their financial reports at least monthly to help facilitate timely and more informed overall decision-making. This update frequency also helps provide a clear view of your startup’s performance to investors. However, the frequency and depth of reporting largely depend on your startup’s audience and its current stage of development.

What is the difference between gross retention and net revenue retention?

Gross revenue retention (GRR) is a measure of how much revenue your startup is keeping from its existing customers before you account for any expansion. More specifically, it includes revenue from existing customers, minus any revenue lost due to churn or downgrades. Net revenue retention (NRR) is the total revenue change from your existing customer base, which includes losses and gains. NRR includes the initial revenue and expansion from upsells and cross-sells, while also considering churn and cancellations.

How do I calculate expansion revenue in SaaS reporting?

To calculate SaaS expansion revenue, add the MRR from existing customers through upsells, cross-sells and add-ons. To express it as a rate, divide this by the starting MRR for a certain period. When expressed as a rate, it shows you the growth experienced by current customer accounts.

What tools are best for SaaS financial reporting and dashboards?

The best tools for SaaS financial reporting are those that blend core accounting with specialized subscription management and analytics. Programs such as QuickBooks and Xero tend to be great starter programs. As your startup grows and becomes more advanced, consider adding more specialized tools to your reporting to help manage subscriptions and analyze data.