SaaS Metrics Mastery: The CFO's Blueprint for Scale-up Success Across New Markets

The SaaS business is a product of the digital age, and as such, being data-driven is in their DNA. Despite that, there is still a veil of mysticism around the financial metrics of a SaaS business:

• What are the financial Key Performance Indicators for a SaaS business?

• How should they be tracked?

• How can they be utilized in directing and planning the growth and profitability of the business?

Early SaaS growth: Building the foundation with annual recurring revenue waterfall

The cornerstone metric for SaaS businesses is Annual Recurring Revenue (ARR). It represents the normalized annual value of your subscription contracts. In essence, it tells you how much money your business is generating at any given time.

ARR breaks down into four further metrics. This is known as the ARR Waterfall or the SaaS Revenue Waterfall:

1. New Business: Revenue from newly acquired customers, which indicates the success of sales and marketing efforts.

2. Expansion: Additional revenue from existing customers through upsells, cross-sells or license expansions. It indicates customer satisfaction with the product and successes in customer service.

3. Contraction: Reduction in revenue from existing customers who downgrade their subscriptions. 

4. Churn: Revenue lost from customers who have cancelled their subscriptions.

These metrics are the foundation for evaluating the financial success of a SaaS business. In the early growth phase of the company, the issue is often how to track these metrics reliably.

How to track the ARR waterfall reliably?

In the early stages of growth, there are usually separate systems in place for billing data (the accounting and billing software) and other customer data (CRM). 

With separate systems, there is a need to integrate the data – usually in a spreadsheet or a reporting tool – to calculate the metrics. But if the data is incomplete or inaccurate in either source, it corrupts the metrics as well. “Garbage in, garbage out”, as they say.

This is why it’s crucial to have proper and regimented data collection processes within sales, marketing, accounting and service teams in place from the start. It’s better to form a culture of accuracy from the beginning, as it is notoriously difficult to change later on.

Our suggestion

• Foster a regimented culture around data entry. Focus especially on the sales team, if CRM data is crucial for reporting. 

• Establish a single source of truth by integrating customer and billing data in one place. Either in Excel, a reporting tool with data warehousing capabilities (such as Naviloq) or by utilizing an ERP with a CRM module (such as Netsuite).

• Establish clear ownership and standardized reporting processes for consistent ARR tracking across the organization. Initially it can be done in Excel, but later on you will probably want to automate it.

The scale-up phase: Use key SaaS metrics to drive your growth

By the time your SaaS business reaches the scale-up phase of its growth, you should have a firm grip on the fundamentals. You should also be aware of your churn rate (percentage of your customers who stop using your service during a given time period) and have some idea of the expected payback period for your growth efforts. Now is the time to start paying more attention to the other key SaaS metrics to drive your business, especially if you are looking for outside investments to boost your growth. VCs appreciate thorough calculations.

Net Retention Rate (NRR) 

Perhaps the most telling indicator of SaaS business health, NRR measures how your revenue from existing customers changes over time, accounting for expansions, contractions, and churn. 

Calculated as: NRR = (Starting ARR + Expansions - Contractions - Churn) / Starting ARR × 100%

A healthy SaaS business typically aims for NRR above 100%, indicating that growth from existing customers outpaced losses.

Customer Acquisition Cost (CAC)

This metric calculates the total cost of acquiring a new customer, including sales and marketing expenses.

Calculated as: CAC = (Total Sales + Marketing Costs) / Number of New Customers

As you consider market expansion, CAC becomes even more critical – acquisition costs often vary significantly between markets. 

Note: New business vs. upselling

When analyzing CAC, it’s important to consider how much of your ARR growth comes from new customer acquisition versus expansion within your existing customer base. The higher the proportion of growth driven by existing customers, the more relevant it becomes to include customer success and account management costs in your calculations – or alternatively, to calculate CAC separately for new customer acquisition only. 

As a general benchmark, many SaaS companies aim for a CAC payback period of 12 months or less, but the optimal level depends on your growth stage and market dynamics. Tracking CAC in context with your growth sources ensures a more accurate view of your customer economics and helps guide smarter investment decisions.
 

Lifetime Value (LTV)

LTV estimates the total revenue a customer will generate before churning. 

The LTV:CAC ratio is particularly important when assessing market expansion opportunities, helping determine if the customer economics justify the investment in a new region.

A higher LTV is a strong indicator of long-term customer satisfaction and business sustainability. One of the most effective ways to increase LTV is by minimizing churn – retaining customers for longer periods directly extends their lifetime value. Monitoring and reducing churn are critical for maximizing LTV and driving sustainable growth. 

Note: Optimize with caution

Tracking key metrics offers insight into different aspects of your business and you can start tracking them as early as you like (VCs might also expect you to do so). However, it’s important to note that they are tools for optimizing your growth efforts. 

Optimising your sales and marketing efforts before your business has become established can lead to wrong conclusions and stunt your growth.

Our suggestions

• Implement key metrics tracking after reaching an established level of ARR.

• Study the numbers thoroughly and make an honest assessment of where your business is currently standing. Use that as a basis for planning your development. 

• By this point, you should probably implement software to enable automated real-time reporting.

• • If you want to learn about benchmark data for SaaS metrics, we recommend you check out B2B SaaS Performance Metrics Benchmarks.

SaaS metrics are a tool for leadership

Tracking business success with proper metrics is one thing, but what is really important is what you do with those metrics. Finance teams – and especially finance leaders – should not operate separately from the business. 

The metrics, both basic and advanced, are tools for leadership. They should be the basis of conversation between you and sales, marketing, operations and other departments. They are the bottom line of every action taken, and they provide the reasoning for increasing or decreasing budgets.

The metrics alone are not enough; they are just a means to an end. Leadership is what it is all about.

Our suggestion

• Note that the role of the CFO in a SaaS business isn’t simply to say “no” to requests for budget, it’s to represent financial perspective in business decisions. 

• Use the key metrics to create plans and budgets for sales, marketing, operations etc. This brings concreteness and a business-oriented approach to financial planning.

Set up regular meetings with your CRO, CMO and CSO to discuss the results, how to improve them and how new actions affect the big picture.

SaaS metrics when entering a new market

Expanding your business into a new market can be daunting. But if you’ve set up your metrics correctly in your home base, it’s not as bad. Then you can consider it to be a new chance to do everything correctly from the start.

Our suggestion

• Set up the tools and processes for tracking the ARR Waterfall right away.

• You can also start tracking the key metrics, but don’t use them for optimization yet. Remember that e.g. CAC is inevitably going to be higher in a new market than an established one.

• Pay close attention to the development of the metrics and recognising milestones. Apply that knowledge to your next market expansion – and before you know it, you have created an expansion playbook. 

Elevate your SaaS financial operations with Staria

Strong data-driven financial operations are the backbone of every successful SaaS business.

Having partnered with numerous scale-up SaaS businesses – including those that have achieved unicorn status – Staria brings deep expertise in navigating the unique financial challenges of rapid software company growth. 

With deep NetSuite expertise and Revenue Recognition certified consultants, we deliver best-practice SaaS metrics and reporting solutions that transform financial visibility into strategic advantage.

Are you looking for a partner to help you take your financial operations to the next level? Look no further.