5 SaaS Metrics You’re Calculating Incorrectly
SaaS metrics: the performance indicators that startups love to hate. Whether you’re the CEO or an analyst at your company, SaaS metrics play a huge role in your day to day. But why are they so important? And what are the hidden costs of getting them wrong? In contrast to financials, which are backward-looking, “report card,” type metrics, SaaS metrics are indicators of a company’s future performance, which is something investors need to understand before they agree to fund your company.
In a recent conversation, Partner at Fulcrum Equity Partners, Philip Lewis, and SaaSOptics CEO Tim McCormick talked about the hidden costs of getting SaaS metrics wrong, and Lewis walked through some of the most commonly miscalculated SaaS metrics he has seen during due diligence periods.
Frequently miscalculated SaaS metrics
The Hidden Costs of Miscalculated SaaS Metrics
The underlying themes of all “hidden impacts” is reduced credibility of a company’s management and a lower valuation. To put it bluntly, errors in your spreadsheets make it seem like you don’t understand your business.
In addition to creating a negative perception during due diligence, miscalculating metrics, or any financial metric for that matter, can have very real downstream consequences on business operations.
Lewis gives an example of a Fulcrum portfolio company that had miscalculated deferred revenue, which in turn rendered them unable to accurately project cash runway.
“They had these long spreadsheets for calculating deferred revenue,” Philip explains. “We went through it and realized they didn’t have enough cash to operate on their revenue plan. They had to take out 7-8 headcount in order to get their burn rate down. They realized something wasn’t right. Their spreadsheets weren’t footing properly. It’s a very real consequence of trying to tie all of this stuff together in spreadsheets.”
So, what’s the fix?
We’ve seen that relying on spreadsheets to calculate GAAP financials, revenue, and SaaS metrics leads to errors and results in the erosion of investor confidence. But what can you do about it?
The first step is to put down the spreadsheet and invest in technology that can automate the calculations of complex SaaS metrics and financials.
SaaSOptics is a subscription management platform that empowers SaaS companies to automate their financial operations and removes the human-error element of relying on spreadsheets. You can learn more about SaaSOptics’ SaaS metrics reporting function here.
Interested in learning more from SaaS financial experts like Philip Lewis and Tim McCormick? Check out FinOps University today for hours of on-demand video content.