Every industry has a set of common business metrics and ratios that management use as a gauge to determine their business performance These metrics are similar to the dashboard in an automobile or plane to monitor if the business is on track. Many companies refer to these as Key Performance Indicators (KPIs) or Objectives and Key Results (OKRs).
There are many thousands of metrics that can be generated. However, only the key metrics will provide a balanced view of the business to guide management on which levers need adjustments.
Software As A Service (SAAS) Metrics
For Software SAAS businesses, Customer Lifetime Value (CLV), Average Customer Lifespan (ACL), Average Revenue Per Account (ARPA), Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Customer Acquisition Cost (CAC), CAC:LTV ratio, Customer Churn Rate, Net Promoter Score (NPS), Sales Cycle Length or the time taken to go from Marketing Qualified Leads (MQL) to Sales Qualified Leads (SQL) to Customers are some of the more important metrics to monitor.
Business Metrics and Ratios – KPIs and OKRs
For other industries different metrics may apply to determine if the business is running efficiently or needs to make some changes to bring the key metrics into equilibrium.
Metrics can be financial or non financial. Finance needs to be closely aligned to ensure any financial metrics are accurately computed. This involves understanding the various components that comprise the inputs that feeds into the formulas and ensure that the accounting team captures the costs in the right buckets to facilitate this analysis.
Tracking revenue growth is one of the most important metrics that investors and management are concerned about. Therefore tracking customer contracts accurately is very important. The MRR and ARR metrics depend on tracking bookings correctly. Once the bookings are in, tracking project implementation and go live is super critical to arrive at the correct reported revenue amounts. Lastly any customer churn should also be immediately updated as this impacts the future ARR value and can also impact cash flow down the road. Customer quality is something that needs to be closely watched. Accounts that churn or spin wheels results in high sales costs that cannot be recovered if the customers do not pay or have short CLVs.
Finance plays a key role to identify which areas of the business are working well and which need further improvements. Well designed metrics will immediately flag poor sales practices, production / delivery weaknesses or poor after sales service. Policy adjustments in different areas can help to bring the business back in equilibrium and finance is a key business partner to analyze the situation objectively and prioritize the changes.
Ezee consultants have experience in multiple industries and can help to setup the right metrics within the company to help in profitable growth.