SaaS Metrics School

In episode #21, I address customer lifetime value (LTV). This is a point-in-time metric! We do not calculate this for our entire customer base. It’s also not valuable as a standalone metric. - The time period of measurement - What metrics are impacted? - You’ll see convergence SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #20, I address customer lifetime value (LTV). LTV estimates the total cash flows that we will receive over the lifetime of a customer. It’s an estimate and changes with every new cohort. - What is LTV? - What are the inputs? - How often do we measure LTV? - LTV is not a standalone metric - Highly applicable metric for price point, high volume SaaS SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #19, I address how sales cycle length impacts the calculation of your sales and marketing efficiency metrics. This question always comes up in my SaaS metrics course and coaching. Get this wrong and your efficiency metrics will be wrong. - What is sales cycle length? - The time period of measurement - What metrics are impacted? - You’ll see convergence SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #18, I address department coding. This is the second pillar in our proper SaaS accounting foundation. First, we need a proper chart of accounts. Second, we need the proper departments in our accounting software. - What are departments? - Identify your departments - Code expenses to the department level - Each accounting system calls it something different - Part of our monthly financial close process - Sets us up for financial analysis and accurate SaaS metrics SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #17, I address the chart of accounts or COA. It forms our accounting in SaaS. If the COA is wrong, our SaaS P&L and SaaS metrics will be wrong. - What is a chart of accounts? - Why is the COA important? - Coding revenue - Coding expense SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #16, I address the Rule of 40, a popular investor metric. As a SaaS CFO, I like to say that financial discipline never goes out of style. There are lovers and haters of the Rule of 40. When investments were flowing, Rule of 40 was put on the back shelf. - What is the Rule of 40? - What is profit? - What is growth? - When should I use the Rule of 40? - What does it mean, really? - When is it a red flag? SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #15, I address variable revenue and sales and marketing efficiency metrics. This is Pillar 5 in my 5 Pillar SaaS Metrics Framework. Variable revenue can be usage, processing, transaction, consumption, etc. Your traditional SaaS metrics will mislead if you don’t make important changes in the formulas. - What is variable revenue? - Do you have subscription revenue and variable revenue? - We must add variable revenue to the equation - We must margin adjust appropriately - Estimates are involved; nothing is perfect SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #14, I address time periods and revenue retention. This was a question from my student community enrolled in my SaaS Metrics Foundation course. - Are we talking about aggregate revenue retention? - We can segment by ICP, product line, etc. - Are we talking about cohort revenue retention? - I calculate monthly, T3M, T6M, and TTM - The danger of TTM retention - Retention can be subjective SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #13, I address our margins by revenue stream. It’s so important to have an accurately calculated gross margin and margins by revenue stream. It affects how you read your business and your SaaS metrics. You will not know where to focus to improve your business without this. - What is our gross margin? - What are margins by revenue stream? - Proper revenue coding is critical - Proper COGS department coding is critical - Revenue stream margins feed SaaS metrics Ben's SaaS Metrics courses here: https://www.thesaasacademy.com/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #12, I address our overall gross margin. It’s so important to have an accurately calculated gross margin. It affects how you read your business and your SaaS metrics. - What is our gross margin? - How to calculate gross margin - What are the traditional departments in COGS? - You know where to focus - High gross margin creates leverage and cash flow - Revenue recognition is important - What is best in class gross margin? Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #11, I address COGS vs Operating Expenses (OpEx). The coding between COGS and OpEx is critical. It requires a proper department structure and chart of accounts. Mess this up and your margins and metrics will be incorrect. - What is COGS? - What is OpEx? - CS coding addressed in episode #10 - Proper coding for gross margins; sets us up for margins by revenue stream - Proper coding for OpEx investment profile Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #10, I address a hotly debated topic. Where should your customer success team be coded? And it depends, of course. It can correctly fall in COGS or OpEx or both. - The case for CS in COGS - The case for CS in Operating Expenses - The case for CS in both COGS and OpEx - What does CS coding matter? - What are the downline impacts of incorrect coding? Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #9, I address your SaaS cost of goods sold. I review a lot of SaaS P&Ls, and I’d say 90% are set up incorrectly. It’s so important to set up your P&L correctly to manage your business and calculate important SaaS metrics. - What should be included in COGS? - Your revenue streams dictate your COGS departments - Why is COGS important? - Expectations of COGS - It starts with your chart of accounts and dimension coding - Avoid the big bucket of expenses Blog Post on SaaS COGS: https://www.thesaascfo.com/what-should-be-included-in-saas-cogs/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #8, I talk about renewal rates, when it’s applicable, and how it differs from revenue retention. If you invoice annually and/or sell multi-year contracts, you must track your renewal rate. It’s a nice compliment to revenue retention and bolsters that story. - What is the renewal rate? - How does it differ from retention? - It’s a nice compliment to retention - Track customer and dollar renewal rate - Where do you get renewal data? Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #7, I talk about the importance of your MRR schedule and the metrics that result from this schedule. It’s a top due diligence request. Nothing like DD to make you question your numbers. - What is an MRR schedule? - How do you create an MRR schedule? - Tools to create your MRR schedule - Rev rec can create havoc - It’s a top due diligence data request - No retention, no valuation MRR and Retention templates: https://www.thesaascfo.com/how-to-create-your-mrr-schedule/ Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #6, let’s talk about planning. Or is it budgeting? Wait, no it’s forecasting. Let’s talk about the differences in these terms. Either way, the dreaded budget season is approaching this Fall if you are on the calendar year. Those in FP&A know what I’m talking about! - The difference between forecasting, budgeting, and planning - Should I forecast? - How often should I update the forecast? - Should I do a rolling forecast and skip the budget? - Do I need to budget? - At what ARR size do I need a budget? - Planning encompasses all of this - Who does the planning for a SaaS company? - Are there templates for forecasting and budgeting? - Planning tests the operational knowledge of your leadership team Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #5, I talk a bit about the SaaS metrics journey. Should we calculate metrics in aggregate or by segment? By customer profile or ICP? SaaS metrics can be dangerous to your financial health if you aggregate the wrong data. - Aggregate or segmented metrics? - When should we put this in place? - How I break out SaaS metrics stages by ARR - What should I consider for segments - Aggregate metrics can be dangerous - The trouble with calculating segmented metrics Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #4, I discuss the meaning of the CAC Payback Period. It’s a top operator and investor metric. Cash must be allocated wisely, and the payback determines how long your capital is tied up in new customer acquisition. - Top operator and investor metric - Measures the months to pay back the upfront customer acquisition cost - CAC payback inputs (cohort ARPA, recurring gross margin, CAC) - What’s your prize? Logos, users, brands, etc. - It’s common to gross-margin adjusted payback - What margin to use - Segmenting your metrics Join Ben’s SaaS community here: https://www.thesaasacademy.com/offers/ivNjwYDx/checkout Follow Ben on LinkedIn: https://www.linkedin.com/in/benrmurray Subscribe to Ben’s SaaS newsletter: https://mailchi.mp/df1db6bf8bca/the-saas-cfo-sign-up-landing-page

In episode #3, I discuss CAC, or Customer Acquisition Cost. CAC can be gross dollars or a unit cost. Screw up your CAC calculation and it affects CAC Payback Period and your Cost of ARR. CAC is fundamental to your metrics reporting package. Highlights: - CAC can be dollars or a unit cost - CAC flows to your CAC Payback and Cost of ARR - What’s your prize? Logos, users, brands, etc. - You must allocate gross CAC dollars - Align CAC measurement to your sales cycle - Fully burdened sales and marketing dollars

In episode #2, I break down the new versus existing allocation that is needed for your sales and marketing expenses. If you are going to calculate CAC and other sales efficiency metrics correctly, you must allocate your S&M expenses between new business and expansion business. Highlights: - We need gross sales and marketing expenses - CAC can be gross dollars or a unit costs - The allocation affects the CAC payback period - The allocation affects the Cost of ARR – new vs existing - Early stage not as likely to allocate - Update this allocation every month - Disclose to stakeholders in your reporting appendix - Pitfall: could have the formula correct but your allocation is way off - This is how metrics can be subjective

In the first episode, I talk about my favorite SaaS metric, the Cost of ARR (aka SaaS CAC Ratio). Highlights: You can calculate blended, new, and expansion Requires new and expansion bookings data Need total sales and marketing expense You must allocate S&M for the Cost of ARR New and the Cost of ARR Expansion Sales cycle length is important Easy way to call BS on a bookings forecast with this metric