Why SaaS reporting is a must (plus the best KPIs)

As the CEO or CFO of a SaaS startup, are you wondering about the importance and relevance of dashboards and analytics for steering your business? SaaS reporting is an indispensable day-to-day management tool. No matter what you’re selling, it generally includes certain key KPIs.This article explains why these financial and business indicators matter for your SaaS, who to communicate them to, and which ones you should track.

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1 - Why generate SaaS reports and who will read them?

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SaaS (Software as a Service) is all the rage with the digital revolution. What's so special about this business model? And why is SaaS-specific reporting relevant? Let’s find out.

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1.1 - Software as a Service

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Countless startups are entering the market, offering innovative applications that can be accessed online for a subscription fee.Gone are the days when we bought software or licenses. With the emergence of tools that can be used in the cloud, both the corporate world and the public now have access to solutions that are revolutionizing the user experience.

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1.2 - Aims of SaaS reporting

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This type of business operates with the expectation of convincing customers to subscribe and use the tool for as long as possible. Analysis of sales and customer behavior as well as the ROI of the customer acquisition cost, are among the fundamental metrics that absolutely must be monitored.

What's more, in the launch and growth phase, service development and acquisition strategy require a lot of cash, especially before the first sales. Monitoring cash flow is therefore another essential component of SaaS analytics.

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1.3 - SaaS reporting: who are your readers?

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The specific needs of SaaS companies mean that SaaS reports need to be adapted for maximum relevance. First and foremost, it streamlines day-to-day operations for managers and executives. A specific dashboard for a SaaS business enables you to keep an eye on the most useful data and ratios.

If you receive financing through fundraising or an injection of capital from investors, the startup must also report key metrics to them periodically. With SaaS reporting, you can reassure investors that their money is safe in your hands.

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2 - What to include in SaaS reporting?

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This sector uses a lot of US business acronyms. As a SaaS entrepreneur, you need to master them and build your reporting around these key indicators. Here are the best KPIs to follow to maximize your chances of success.

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💡 Article: How to calculate KPIs for SaaS companies?

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2.1 - Sales: the top line of SaaS reporting

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As this is a service offering, the most important data point to track in SaaS reporting remains sales. Tracking the sales you’ve made and how they’ve changed give you a clear idea of your company's performance.

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a - Recurring revenue: ARR and MRR

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MRR, or monthly recurring revenue, is one way of tracking monthly subscription sales. As the months go by and the startup matures, management should aim for higher and higher MRR.

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💡 Note that the MRR billed on an annual offer needs to be adjusted to reflect actual MRR over 12 months. Say a company closes its accounts on 31/12:

• if you bill a customer €1,200 excluding VAT for an annual subscription from 30/06/2022 to 01/072023;
• then you must divide €600 by 6 (giving you an MRR of €100).

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ARR, or annual recurring revenue, is another key KPI for SaaS. It is the volume of annual sales (total sales over 12 months). ARR corresponds to MRR x 12 and gives an overview of recurring sales over the next 12 months. This makes it a particularly useful metric for forecasting sales. It also serves as an goal that management can aim for (a target sales volume for the current year).

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These two indicators can be broken down by product, customer type, etc. We'll come back to the breakdown of sales in a later article.

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💡 Note that it's also important to track your non-recurring income (setup fees, for example), which can be a major lever for growth.

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b - ARC: average revenue per customer

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This is an important data item in SaaS reporting. It measures average revenue per customer or user. The aim of any SaaS, regardless of its offering, is to maximize this sales figure. You can increase ARC by up-selling(switching to a more expensive subscription) or cross-selling (adding other services to the subscription).

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💡 Note that ARC is also known as ARPA(average revenue per account) or ARPU (average revenue per user).

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c - Sales trends and breakdown: analysis of churn and lifetime value

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Keeping a customer costs less than winning a new one.That's why it's essential to monitor your retention rate using:

• Churn rate, which measures the percentage of customers lost. Analyzing it helps you understand what you need to improve about your offer.
• LTV (lifetime value), which calculates the total revenue a customer generates over their estimated lifetime.

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2.2 - Cost and expense KPIs

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In a SaaS business, the main cost is customer acquisition (sales, marketing, and advertising). Added to this are website management, maintenance of the application or services offered to customers,and payroll.

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a - Customer acquisition cost—a key metric in SaaS reporting

Customer acquisition cost (CAC) is the total monthly expenditure divided by the number of new customers in the same period.The main acquisition costs are sales salaries, marketing, and advertising.

You need to keep a close eye on your CAC and how it changes over time. It is the main indicator for monitoring your revenue and the profitability of your business.

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b - CAC payback period: number of months of subscription to cover the CAC

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This is the ROI of your expenses. It tells you how many months into a subscription you must wait before you cover the cost of acquiring the customer.

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2.3 - Cash management KPIs

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Fledgling startups spend before they earn. This makes close cash flow monitoring a key metric in SaaS reporting.Unfortunately, it's because this metric tends not to be reported and monitored that so many startups fail in the first few months.

Burn rate measures how quickly you use up your cash.It can be broken down into several indicators:

• Gross burn rate, which measures total expenditure over a given period.
• Net Burn Rate, which measures the number of months of cash remaining. It includes both gross burn rate and forecasted sales for the period.

The fundamental KPI for managing cash flow in a SaaS company is cash runway (current cash situation/projected net burn rate). It can be compared to a company's life expectancy: based on cash available today, and future expenses, how long do you have before you run out of money?It's worth keeping a close eye on this metric, so you can find the right financing at the right time and continue to grow.

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2.4- Performance indicators in SaaS reporting

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Here are some important KPIs for measuring your SaaS performance. The idea is to assess your ability to achieve your goals while making optimal use of your resources. Performance can be global,financial, operational, or environmental. Report these key indicators in your monthly dashboard, so you can monitor your performance throughout the year.

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a -LTV/CAC ratio

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This is one metric that investors are particularly keen on. It compares the total revenue expected from a customer with the cost of acquiring that customer. Ideally, aim for a ratio of 3 to 1. As you can see, the longer a customer remains a subscriber to your services,the higher your company's profitability. And in the end, isn’t that what we all want?

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b -New MRR/cash burn

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This ratio compares new subscriptions in a month against expenses over the same period. It is also a measure of how effective your cash burn is at generating new MRR. If this ratio is more than 1, cash flow is improving. Otherwise, it is deteriorating.

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c -Churn rate

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This essential ratio measures the rate of customer loss per period.

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d - EBITDA

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EBITDA is key indicator in financial circles today. Like gross operating surplus, it measures a company's profitability prior to any financing or investment policy. It reflects operations and is the first item in the calculation of free cash flow.

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e - Breakeven point

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When the breakeven point is reached,sales cover the company's expenses. The higher a company's fixed costs, the longer it will take to break even. But once the breakeven point is reached, the company turns a profit.

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f - NPS (net promoter score)

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This indicator is designed to measure customer satisfaction by counting promoters and subtracting detractors of your SaaS.The percentage of passive customers is excluded from the score.

SaaS reporting therefore ideally includes these KPIs, which are considered the most relevant for steering your business. As you can see, all the indicators are linked: cash flow, retention, and customer satisfaction are linked, acting as levers for your overall performance.

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Already know which SaaS reporting data to track? What you need now is a dashboard that directly links to your data sources. Fincome is the partner of choice for SaaS companies. Request a demo of how we help you build reliable, up-to-date SaaS reports in just 24 hours.

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💡 Complete your reading with the following articles:

• How is a SaaS company valued?
• 3 common mistakes that kill SaaS startups
• Automated reporting for SaaS: a quick guide
• ‍KPI reporting at every stage of your startup
• Why is SaaS financial reporting still crucial for your startup in 2023?