Software, consultancy and services companies are increasingly moving away from large one-off sales and are structuring their go-to-market and revenue models based on regular contract billing. Companies love the recurring income nature of repeatable, predictable revenue. Customers love the fact that they do not need to invest large sums of money upfront – they can pay a monthly or annual fee for the software, services etc. The business model works for both customers and suppliers – a true win/win. These new revenue models which include contracts, recurring billing and incremental additions to existing contracts create challenges for the new-age CFO. Without software to automate the contract, billing, project and recurring nature of invoicing, SaaS and contract billing companies will struggle to scale. Once ERP software is implemented to manage contracts, recurring billing and projects the business can start to manage based on the right criteria for a SaaS and recurring contract billing company. Yes, the profit and loss and balance sheet is still required for financial and tax reporting but, new age recurring income businesses need to monitor a new set of KPIs including:
Customer Acquisition Cost – CAC
For your business to be profitable in the SaaS industry a huge factor is knowing how much it costs to find new customers. Being able to choose the best sales and marketing approach. Often depends on knowing how much it costs to acquire new customers.
To calculate CAC it is best to divide your total costs of sales and marketing by the number of deals closed in a particular time.
Monthly Recurring Revenue – MRR
Recurring revenue is the backbone of any SaaS company – quite simply, you have to keep adding to your MRR.
Your MRR is a single number you can track even if you have many billing cycles and pricing plans.
Customer Churn
Customer churn is the number of customers who will cancel their contract or “churn” away from the business. It is often due to customer dissatisfaction or other products being cheaper or more appealing.
Churn is always bound to happen, but it is important to know what numbers are acceptable. In SaaS companies, churn rate should be around 5-7% annually.
The goal regarding churn rate is to ultimately achieve negative revenue churn. To attain this, you must prevent customers from unsubscribing, as well as you must find a way to get existing customers to upsell and use more of your solution stack.
ARR – Annual recurring revenue
A key performance indicator for any SaaS and subscription billing company the ARR helps management and investors understand the value of annual subscriptions which without any customer churn is effectively guaranteed revenue.
Net new ARR
A similar measure to ARR except that net new ARR shows the amount of new annual revenue that you are adding to your annual subscriptions. High-growth SaaS and subscription billing companies will be looking for substantial net new ARR.
ARR average per customer
Similar KPI’s to those mentioned above. Except the ARR is divided by the number of customers to show the average ARR per customer. High growth businesses typically want to see an increase in the ARR per customer which indicates an upward trend in the customer size and therefore recurring income.
Upsell – A KPI that measures how much additional subscription income is added to an existing contract.
Sage Intacct provides an end-to-end solution for contract billing, recurring income and revenue recognition with automated KPI’s and reporting that allows recurring income businesses to measure the metrics that matter. The Sage intact digital bord book is a pre-built highly configurable set of dashboards and KPI’S built specifically for the subscription billing industry. This provides instant access to real-time information for accurate decision-making across the business and investor groups.
Sage Intacct Digital Board Book
If you want to know more about Sage Intacct for your subscription billing business, please contact the Sage Intacct team at leverage technologies on 1300 045 046 or email us at sales@leveragetech.com.au