Leave a comment

SaaS founders are an awesome bunch. We're "Get Stuff Done" people used to hacking our way to success all on our own. Yet, because of this proactive default we can have massive blindspots.

We all saw this recently with Zirtual's collapse due to the fact that they didn't know their financial metrics precisely, resulting in too much burn and not enough revenue to cover costs, let alone grow. As Founder and CEO Kate Donovan put it, "[our] numbers were just completely f***ed."

We all may laugh or gossip about Zirtual's demise, but how confident are you in your own financial SaaS metric calculations? How about when I tell you that we found 2 out of 5 SaaS companies with greater than $10M ARR were incorrectly calculating something as seemingly simple as MRR?

This article walks through how when it comes to your SaaS financial metrics you need the precision of a specialist. The math gets too complicated, and the stakes for getting them right are too high.

  • AT

    Andrew Tate

    over 4 years ago #

    Doesn't this mean that you SHOULD know your metrics and that's part of the founders job?

    • PC

      Patrick Campbell

      over 4 years ago #

      Great question @ajtatey - there's a huge difference between being able to audit/trust your practitioner and being a practitioner yourself. For instance, I can look at reviews, the education pedigree, and interview my doctor, but it doesn't mean I'm going to go become a doctor just so I can stitch myself up (even then there are places I can't reach ;)).

      When it comes to your metrics, you absolutely need someone to be monitoring and caring about their accuracy 24/7. You *can* run this internally, but it shouldn't be the CEO/Founder and instead should be an analyst. Even then though, that analyst will likely be overwhelmed with different market shifts and need to pull in dev resources to build things properly. This results in issues with essentially then building your own product internally when there may be some externally already ready to go.

      In short, I think it's less *should* and more *you can*, but you'll still end up running into a ton of problems that should easily be outsourced.

  • WC

    Walter Chen

    over 4 years ago #

    this reminds me of the buffer article re building yearly into mrr: https://open.bufferapp.com/mistake-made-measuring-revenue-confusing-bookings-revenue-mrr/

    of course, joel & co handled it with transparency and grace, and most importantly of all, they were growing like crazy so it didn't really matter.

    but i've seen this kind of thing really screw with a team's morale and confidence, and then ultimately take a lot of time in working on metrics continually.

    • PC

      Patrick Campbell

      over 4 years ago #

      Absolutely. Bookings differ from revenue which differs from MRR. That nuance we see ALL the time.

      This also opens up the difference between management metrics and financial metrics.

  • TV

    Tyler Vawser

    over 4 years ago #

    Who should manage the metrics internally even if they're using a tool?

    • PC

      Patrick Campbell

      over 4 years ago #

      Great question @tvawser - this ultimately depends on how you're structuring your team overall. At some level your metrics should be communicated throughout your entire organization, because we've seen a correlation between the spread of metrics and growth rate: http://blog.profitwell.com/this-simple-hack-will-grow-your-revenue-34-share-your-financials

      That being said, there should always be a decision maker. In a smaller organization this rests on the CEO. In a larger organization will put a stamp of approval on the financial metrics, but typically each org head will be in charge of their specific metrics (marketing, sales, product, etc.). In super large organization, you'll have an analytics team which typically will sit under finance or product.

      In short though, you need someone assigned to manage your metrics to make sure they're audited and being used properly.

  • JD

    Jose Domingo

    about 3 years ago #

    Really Interesting perspective on Metrics, and surprise to say I actually agree with you. At first, I took the title as a bit of an attack towards knowing metrics, but then its not that at all. This is about time and efficiency with following your metrics and how it is seen.

    At Sweet Tooth, my main job is to watch our website traffic and conversions, report it, and find new opportunities to grow. That takes up so much of my own time, can't imagine our CEO having that time. What I do is aggregate data than forward it to the team to stay on track.

    Thanks for the share @patticus !

    PS
    I saw a lot of stuff about Churn, I thought I'd share an actionable post of metrics anyone can use for Churn. All the best!

SHARE
33
33