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Strategy

These are the Finance KPIs SaaS Revenue Leaders Obsess Over


by Rowan Tonkin

While KPIs run the spectrum of business activity, here are the four metrics that CEOs, CROs, and the board put at the top of their list.

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It’s no secret that financial reporting is critical to business management. Yet many finance professionals aren’t focused on the KPIs that catch the attention of the CEOs, CROs, and board members—or if they are, they’re not tracking and presenting them in the right way.

Finance pros are inundated with data every day, so it’s essential to find those KPIs that are most relevant to the overall business. KPIs can vary by industry, company maturity stage, even department or function; sales and marketing departments, for example, follow very different performance metrics than customer support or HR.

Yet by definition, enterprise-level KPIs should provide a concise snapshot of corporate activity and health. Most senior leaders understand this and will focus on essential indicators, requesting additional information only where needed.

KPIs aren’t a new concept, but there are new ways to make them clear, concise, insightful, and impactful.

Proper Tools are Necessary

It’s not enough just to track KPIs. They must be presented in a relevant manner that conveys actionable insight. By developing a repeatable method for reviewing and discussing KPIs, it’s possible to take quick action when a particular metric is not tracking to its target.

There are a variety of tools to communicate KPI results. These range from reports generated by various CRM, ERP, or BI systems, to a centralized solution in which a cloud-based planning system creates a single version of the truth, presented in an executive dashboard. In the latter case, KPIs can be rendered and delivered automatically through standard reports or scorecards. Automated financial reporting offers both internal and external stakeholders easier insight into the overall health and performance of the company.

Whatever KPIs a company settles on, experts agree they should be set using a combination of top-down and bottom-up processes in support of overarching company goals, whether they be managed through OKRs, V2MOM, VSEM or any other management framework. Department managers can recommend which KPIs are most important, followed by direction and review by the executive suite.

A mix of leading and lagging indicators will capture the past as well as predict future challenges and opportunities. Once appropriate KPIs are determined, they should not be changed regularly. It’s advisable to allow several months or quarters to pass before consideration is given to updates or revisions.

Four KPIs to Watch

While KPIs run the spectrum of business activity, here are the four metrics that CEOs, CROs, and the board put at the top of their list:

Market Share. Market share reflects not only the amount of business a company does, but also how investors perceive the company’s competitiveness and even its viability. Sales alone do not reflect changes in external factors, i.e., market size or economic fluctuations. Market share provides this insight—and can also be a leading indicator of future success and potential economies of scale. With the help of Finance, C-suite executives can dive into the factors behind market share, such as customer service, sales volume, R&D and others.

Revenue Growth. This is one of the most obvious of the KPIs—but reporting (and managing) revenue growth can be tricky. Many finance and performance systems aren’t set up to understand the factors behind revenue growth. Slow, complex planning systems that suffer from a lack of strategic focus can make these measurements inadequate.

Finance can help drive growth by implementing a collaborative, SaaS/cloud solution that facilitates information flow between systems. Insight is further enhanced if the platform uses real-time analytics that determine the root causes of anomalies and variances.

Customer Acquisition and Retention. Closely aligned with revenue growth, but important on their own, is how well a company builds its customer base. Acquisition and retention are prime metrics for establishing changes in customer loyalty.

Customer Acquisition Cost (CAC) and LTV (Life-time Value) are two of the most important benchmarks any brand can measure. They quantify the effectiveness of the company’s sales and marketing efforts, as well as how well the business is meeting its overall growth goals. When combined as a ratio (CAC:LTV), these benchmarks can narrow in on the price to create and retain customers, and ultimately help identify where companies can optimize. 

Operating Margin. Finally, operating margin provides insight into a company’s operating efficiency and pricing strategy. It’s another KPI that’s critical to potential investors and existing creditors because it reveals how much revenue can decrease before an organization runs into trouble.

The higher the operating margin, the more profitable the company. A drop in operating margin, however, can trigger all kinds of serious decisions. Depending on the variability of revenue and controllability of costs, a range of minor or significant changes may be in order.

Need for Continual Planning

Without the right tools to stay up-to-date on what’s happening across the business, it can be difficult to make informed decisions.  Timely and accurate financial reporting and analysis helps the executive team understand the organization’s performance, identify opportunities, and make decisions that accelerate growth. 

With the pace of change only increasing for business, it is especially critical that I leverage a Continuous Planning cloud-based platform when making important strategic decisions, so that I can arm both the CEO and board members with data to support those decisions at a moment’s notice. 2020 highlighted the need for leaders to make faster course corrective decisions and gaining feedback into prior decisions through accelerated feedback was critical to doing so. I was able to leverage feedback across various dimensions such as segment, industry, channel, and geography to help pivot and recommend course corrections within the business that helped ensure we stayed on course.

The ability to perform real-time, ongoing KPI analysis is crucial. Not only does it allow decision-makers to monitor and assess the impact of operations and initiatives taken on behalf of the enterprise, but it also enables teams across the organization to be proactive about improving performance.

When the right KPIs are emphasized, team members feel more engaged and invested in achieving corporate goals. It’s the job of finance professionals to identify and support those KPIs that mean the most to the organization. Moreover, a streamlined set of KPIs will allow senior executives to make faster and smarter decisions, be more proactive, and create happier, more effective employees and teams.

Not to be lost in the conversation is the importance of turning finance into true partners to the board and executive suite. By supplying relevant, accurate, and timely KPIs, finance becomes a participant in the “art of the possible,” as opposed to simply the budgetary traffic cops or, worse, simply a service desk to the management process.

If the COVID-19 pandemic has taught organizations anything, it’s that conditions are fluid and must be dealt with on a continual basis. A strong planning analytics platform provider will help by recommending technology and systems that measure critical KPIs continually. In a business environment where personnel continue to work either partially or fully remote, KPIs help everyone within an organization, despite myriad challenges, drive progress together through an intentional system of accountability. At a time when unexpected business challenges seem to come around every bend, KPIs can help an organization keep its eyes on the road—and ultimately, get it to the destination it intends to reach.

Rowan Tonkin is Chief Marketing Officer At Planful.