Here at Subscript, we love getting into the weeds of B2B SaaS metrics with finance leaders, CEOs, and investors through our video series, Diving Deep with Subscript.
As we’re preparing to launch our tenth episode, let’s reflect on ten of the lessons we’ve learned from our brilliant guests thus far.
1) Cohorts are extremely important and underappreciated
📖 Lesson from: Tomasz Tunguz, Managing Director at Redpoint Ventures
Looking at cohorted data is extremely valuable for B2B SaaS businesses. But, we’ve found that it’s still rare for companies to examine their data in this way because of how difficult it is to do in Excel. If you can crack the complexities of the data then you’ll unlock a true competitive advantage.
“Cohorts are really important and underappreciated. It's important to understand why certain cohorts are performing: whether it was tied to a particular feature launch, or the hiring of a VP of Sales, or something else that happened in the market. Cohorts, broadly, are underused in order to understand businesses.”
- Tomasz Tunguz, Managing Director at Redpoint Ventures
2) It’s time to say goodbye to LTV:CAC
📖 Lesson from: Kristina Shen, General Partner at Andreessen Horowitz
LTV:CAC is a popular metric for B2B SaaS companies but it’s starting to go out of style. In fact, it’s no longer the best way to measure the efficiency of your sales and marketing spend. Instead, it’s important to have a solid understanding of your CAC Payback period because it’s straightforward, difficult to manipulate, and easy to calculate.
“I ignore LTV and just ask what your CAC Payback is. If I know your CAC Payback period, I can make my own judgments about your LTV.”
- Kristina Shen, General Partner at Andreessen Horowitz
3) Data is the #1 pain point for all CFOs
📖 Lesson from: Tien Anh Nguyen, Former CFO at UserTesting
“Messy data” is the core challenge faced by B2B SaaS finance teams. Some of your data are in one system, some are in another, and they never quite talk to each other. Or, when they do, something is always a little…off. So, if you’ve been feeling this pain, you’re not alone.
“Data is the number one pain for all CFOs. The process of putting together SaaS metrics that people trust, and can be mapped over a long period of time, is very difficult. Most CFOs are very uncomfortable at some level with the data that they have, especially these days when there are so many data sources out there. And so the ideal case is when we have one system that ties everything together so that these metrics can be calculated and analyzed in a consistent way. Because with that, people will trust the data, people will believe in it, and it's more timely and more actionable.”
- Tien Anh Nguyen, Former CFO at UserTesting
4) Start investing in a solid data infrastructure now
📖 Lesson from: Frank Bien, Former President and CEO at Looker
Building a solid data infrastructure, especially for financial data, can be quite the challenge. That’s one reason why it’s tempting to think you can solve it later when your business has more time and resources. However, now is the time! In fact, according to Frank Bien from Looker, it’s impossible to start on this too early.
“You have to invest in this from the very beginning, like from before the company’s formulated. This is the foundation of your company. You don't look at these later and say they're important because you just want to monitor the business. These ARE the business.”
- Frank Bien, Former President and CEO at Looker
5) With Usage-Based Pricing, data will become even more critical for your finance team
📖 Lesson from: Kyle Poyar, Operating Partner at OpenView
If your business is considering usage-based pricing then life is about to get even more data driven for your finance team. For example, you’ll need to look at what happens to cohorts of your customers over time. And, you’ll be keeping a close eye on the factors that predict whether usage is going to grow or shrink in an account. Fortunately, this all means that your team is set up to become an even more strategic partner inside the business.
“With usage-based pricing, your finance team can actually become a much more strategic operator inside of a business. But it requires getting really good granular usage data at a historical level across your accounts and having folks with a data science background that can be looking at that data continuously.”
- Kyle Poyar, Operating Partner at OpenView
6) Excel is not enough
📖 Lesson from: Chitra Balasubramanian, CFO at CircleCI
Finance teams love Excel because it helps them wrangle all of the data that they need to guide their businesses. But, year after year, the volume and complexity of that data grow exponentially. Excel, no matter how valuable a tool it is, is no longer enough when it comes to tracking your B2B SaaS metrics.
“Data really is the foundation of business and it's just getting more and more complex and it's just accelerating in that complexity. It's hard to kind of stay on pace with that without the right tools.”
- Chitra Balasubramanian, CFO at CircleCI
7) Be transparent with your data
📖 Lesson from: Mike DePaschalis, Head of Finance at Postal.io
As a great finance leader, it’s up to you to use data to strategically guide your business. And, you certainly can’t do that alone! A critical part of your role is sharing your data and insights with the rest of the organization.
“Honestly just work on being so transparent with the metrics. Just be able to provide these leaders with what matters most to them and make sure that we're all striving towards the right goal and optimizing it along the way. That would be my biggest advice and it's been a game changer for us.”
- Mike DePaschalis, Head of Finance at Postal.io
8) Investors need you to be data-driven
📖 Lesson from: Todd Gardner, Managing Director at SaaS Advisors
Things have changed, and these days investors expect CEOs to be data driven and understand the nuances of ARR, NRR, LTV, CAC, and other SaaS metrics. If you’re thinking of raising another round and you don’t know these numbers well, then now’s the time to get up to speed and build a proper finance data infrastructure.
"If you're not a metrics person and you're going out to do fundraising, become a metrics person."
- Todd Gardner, Managing Director at SaaS Advisors
9) NRR is more important than ever
📖 Lesson from: Alka Tandan, CFO at Gainsight
ARR, and how fast it’s growing, is always going to be important to investors. But, these days, NRR might just be the #1 metric for you to keep your eye on. Whenever we ask SaaS leaders about the most important SaaS metric, NRR is always number one or two on the list because it demonstrates how much customers love your product, and how much you can grow even without adding new customers.
“NRR is one that we kind of look at as the health of your business. And I would say in the current economy, people are kind of shifting to a real hyper focus on NRR. In particular, there was a McKinsey report that just came out that said valuation is highly correlated to NRR.”
- Alka Tandan, CFO at Gainsight
10) Look at retention numbers as cohorts, not as a static number
📖 Lesson from: Michael Tam, Partner at Craft Ventures
Instead of just looking at NRR as a single number, it’s important to understand the NRR for each of your cohorts. For example, you may examine retention rates specifically for customers who joined you in December of 2018. Or, you could measure retention behavior for food retailers separately from clothing retailers. This will unlock important insights that you never would’ve seen by looking at a single NRR number.
“Instead of presenting retention as a static number we like to look at that on a monthly or quarterly cohort basis. And we like to have a weighted average per cohort.”
- Michael Tam, Partner at Craft Ventures