Good SaaS CFOs manage increasingly complex organizations and responsibilities. The Finance organization has grown to be one of the strategic assets of a SaaS company, managing the numbers, planning for growth, contributing to strategic changes in Sales, Marketing and even R&D, not to mention closing the books every month, quarter and year.
SaaS Finance: One Source of Truth
The old days of a company getting by with a Controller and one or two bookkeepers is long gone. From closing the books, to cash flow management and planning, to budgeting and forecasting, SaaS Finance responsibilities have expanded into all corners of the SaaS company.
Today, SaaS Finance managers are responsible for being the one source of truth about a company’s performance and operating metrics. SaaS is a numbers business, so it is critical to success to get it right. For every key operation that the company undertakes, there are business systems tracking metrics and performance for that particular company function. SaaS Finance executives are responsible for checking and reconciling differences between all of these systems, for example, between a company’s CRM, HR, billing, and financial back-end, among other myriad systems.
Take the example of tracking customer counts. Is the current number of customers what comes out of the CRM system? But Sales might consider a lapsed customer a customer even if their subscription renewal is a bit overdue. Or does the number from the Subscription Management System? Or, do you have an ERP or financial system? These systems may all have different numbers. Then there is problem of defining a “customer.” Is it the number of users, or number of companies using your product? Are very large companies with many different contracts with your company one customer or many different customers? Finance is usually the neutral intermediary that determines these definitions. Bottom line is that if you don’t have the right customer number, you can’t calculate the Customer Acquisition Cost (CAC), or customer retention rates or other key indicators of your SaaS performance.
In addition to reconciling all key metrics and data into one set of numbers that management and other stake holders can use to understand the business, Financial Planning & Analysis (FP&A) manages the budget, and does planning and projections to help senior management and operational business owners (Head of Sales, Marketing, Product, Services, Customer Success, etc.) to plan for growth in expense, headcount and productivity measures. Further, Finance produces the numbers for the Board to see the company performance and where the company is going, which may be a monthly or at least a quarterly activity.
While SaaS revenue recognition, while different, can be simpler than with license products. SaaS accounting can be much more difficult as there are more transactions per customer than with traditional license deals. SaaS accounting is very tied into sales compensation as sales people may be paid for a longer period than with traditional, one-time license sales. Revenue sharing deals with partners may also require more complex accounting. SaaS accounting is critical to another major responsibility of Finance which is cash flow management and planning. Because of the subscription model of SaaS companies, cash outflows and cash inflows tend to follow different patterns and need to be tightly managed, especially in high growth companies.
SaaS Finance Titles
SaaS Finance titles have grown far beyond Controller and bookkeepers and maybe one or two Financial Analysts. Typical SaaS companies in the growth stage may have a VP of Finance, a Controller, a head of Financial Planning & Analysis (FP&A), myriad Financial Analysts, plus Business Systems Analysts, Billing Analysts, and more. If SalesOps sits in Finance as it does in many companies, then the list is even longer.
SaaS Finance Headcount Benchmarks
We frequently get asked: how many Finance staff does a typical SaaS company hire? There are many versions of a “typical” SaaS company, so it is important to understand the benchmarks for different size companies and different business models. We added this metric to our benchmarking about 5 years ago as many companies wondered what their peers were doing in this area.
SaaS Finance FTEs increase as the company grows, see the following chart from OPEXEngine’s most recent benchmarking of Software and SaaS companies.
Source: 2018 OPEXEngine BenchmarkEngine. All Rights Reserved
As SaaS Finance grows, SaaS G&A expense typically grows as well. We’ve written before about higher G&A expense ratios in SaaS than in traditional software companies – SaaS G&A is surprisingly high.
To learn more about how your Finance department compares to your peers and market leaders, benchmark your company in the BenchmarkEngine. And if you have any questions, don’t hesitate to contact OPEXEngine.