Companies today are under heavy pressure to cut back their losses from previous quarters and stay on top of a rapidly changing environment. For companies to succeed in this highly competitive market, today’s organizations need to have an in-depth knowledge of their financial key performance indicators (KPIs).
Because they were designed initially for businesses that sell one-off products and do not function well with recurring business models, traditional financial KPIs do not provide the insights that growing SaaS companies need. This is because traditional financial KPIs do not give enough information.
Fortunately, in tandem with the expansion of this market, we have witnessed an increase in the prevalence of KPIs that are more well adapted to newer business models.
In this article, we’ll look at important KPIs for finance departments that organizations need to keep an eye on in 2023 to ensure financial and organizational success.
Costs in Acquiring New Customers (CAC)
When it comes to software as a service (SaaS) companies, the price of gaining a new customer is frequently higher than the revenue the customer contributes each month. In this case, getting a return on this investment could take many months or perhaps several years.
Customer Acquisition Cost, also known as CAC, is a metric that determines how much it costs a business to acquire new clients and how long it takes for that business to make a profit on its initial investment.
This can be calculated by first defining how much money was spent on marketing and sales efforts that were directed toward acquiring new customers (let’s say this was $25,000) and then dividing that total by the number of new customers that were acquired (let’s say you attracted 7,000 new customers).
CAC = $25,000/7,000 = $3.57
Cost Per Customers (CPC)
It might be highly beneficial to have a solid understanding of your Cost Per Customer. If you can determine how many specific clients or customer segments cost your company, you can make educated decisions regarding pricing, sales, marketing, and go-to-market strategies for your company.
It can be pretty challenging for organizations to comprehend and quantify the costs associated with each customer. When it comes to providing assistance for customers and delivering new features, the costs of using cloud computing make up a significant portion of the overall.
A financial planning and analysis software like Performance Canvas can come in handy in situations like these. It helps finance teams focus on business criteria that are the most important to them, such as cost per customer, feature, product, and more.
You won’t ever be in the dark regarding the money that particular consumers cost your company. You can view your business’s average client cost, your most expensive customers, and how customers use specific items and features offered by your company.
Customer Lifetime Value (CLV)
Monitoring customer loyalty provides insight into how valuable customers may view your offering and allows you to forecast how valuable customers will be to your business over time.
This is why the Customer Lifetime Value (CLV) statistic is so significant. CLV demonstrates the typical amount of net profit that your company makes over a single customer’s complete life cycle. You should, ideally, be able to recuperate not only your CAC but also much more than that.
The following is the formula that is used to determine CLV:
The value of a customer is calculated by multiplying the average purchase amount by the average number of purchases.
CLV = Customer Value X Average Customer Lifespan
Customer Value = $12.45 X 6 = $74.70 each year
CLV = $74.70 multiplied by 3 years, which equals $224.10
Tracking Finance KPIs with Performance Canvas
Using data to inform future business decisions is at the heart of what KPIs are all about. Selecting the appropriate metrics to track regularly and monitor is an essential step in ensuring the success of your organization.
Traditional financial key performance indicators (KPIs) such as a company’s net profit margin, customer acquisition cost, customer lifetime value, and other similar metrics will continue to be essential for businesses to track. Despite this, finance teams need to be familiar with financial KPIs that directly impact the cost of delivering their products and services. Cost measures such as unit cost, cost per customer, feature, product, and others are all essential for businesses that want to stay ahead of the competition.
PCF provides you with the necessary intelligence to view expenses in the context of their business, increase cost predictability, and view the influence of various business activities and products on those costs. Finance teams can track the cost-effectiveness of their work and the specifics and reasons behind critical business drivers.
PCF provides organizations with the cost knowledge they need to make informed decisions that improve profitability across their products and services and their business operations. On top of this, PCF offers a complete FP&A solution, meaning aside from being able to track key metrics, you can also generate financial statements easily, create budgets and forecasts with high degree of accuracy, and aggregate/consolidate your figures across the business automatically.
Learn more about PCF by visiting the website or booking a free demo today.