Every successful SaaS business needs complete control of the key leading and lagging indicators. But which are they? How do you keep track of them, what are the benchmarks, and how do you get them to interplay? In this panel session, four experts shared their take on this..
Moderator: Elif Schmidt, CEO Oxceed. Panel: Nora Tandberg, CFO Papirfly Group, Sølve Nord, CFO Kindly and Casper Nielsen Christiansen, CFO Penneo
In a SaaS business, there are many things to measure to ensure everything is on the right track to that coveted hockey stick curve.
Elif: So, what are the most critical metrics to be on top of?
Casper: It’s important to look at the timeline. If you’re looking at the long-term, for example, if you’re looking to raise funds, you need to look at things like cash burn in relation to your growth; your Net ARR retention. Short-term, a leading indicator for us is activity levels.
Elif: What are the three top leading and lagging indicators you are measuring in your companies today?
Nora: At Papirfly, essentially, we have two goals: customers and cash. So we pick a few relevant indicators connected to those goals, focusing on leading indicators. On the customer acquisition side, leading indicators are leads generated, for retention, we have customer satisfaction as a leading indicator. And for cash, we need an efficiency indicator, such as time to value.
Sølve: Yes, we follow the same structure. And it’s important that these indicators don’t stay in the management room; they need to spread throughout the organization. So each team tries to identify the key value drivers and track them. That creates a performance culture where everyone is very aware and has a sense of urgency.
Our top three lagging indicators are new sales growth, churn, and net retention. These are very important, and they are also key valuation drivers in SaaS. Our top three leading indicators are qualified sales leads, the quality of the leads, and the length of the sales cycle.
Nora: The thing is that once you have access to the lagging indicators, it’s already too late. This is why the world is heading towards a focus on leading indicators. The leading indicators that we’re focusing on at the moment are leads generated, and for customers, we’re looking at customer usage statistics, which give us an indication of churn risk. We also see our capacity in R&D as an indication of our ability to innovate and win over the competition.
Casper: As we’re a listed company, we need to consider both what we present to the outside world, such as ARR, Net Retention Rate, and churn. Cash burn and CAC:LTV ratio is also crucial in that context. Internally, eNPS, Employee Net Promotot Score, is an important leading indicator.
Sølve: Putting metrics in place is a very valuable exercise, but it’s important to remember that it’s only when they’re rolled out and adopted in the organization that they’ll have any effect.
Sølve: Yes, getting buy-in from the teams on the leading indicators is crucial, since they will be the ones delivering on them.
Elif: You’re all CFOs. According to you, what is the most essential role of a CFO in a fast-growing SaaS company?
Casper: It’s important to not just sit in a corner with an excel sheet. It’s essential to focus on the team and on all the positive opportunities in the market. We need to do our job without killing the vibe with all our talk about numbers and ARR.
Nora: Fast-growing B2B SaaS businesses are by definition dynamic and chaotic, and we need to make a lot of decisions fast. And the CFO role is really broad; it’s not just about measuring. It’s also about ensuring that the right people are talking to each other at the right time. Connecting those dots is important as a CFO.
Sølve: The CFO is kind of a bridge between the board room and the management room, making sure interests are aligned. The more challenging part is stepping out of the box and being a good sparring partner for the whole organization, ensuring everyone is going in the right direction.
The whole panel agreed that defining both lagging and leading indicators early is important, and to do that, you also need to know what your goals and objectives are.