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Top 5 financial KPIs for SaaS technology companies

Top 5 financial KPIs for SaaS technology companies

Knowing the metrics that are most important for SaaS technology companies allows you to adequately track -- and tweak -- your business and its approach. These key performance indicators (KPIs) tell you a great deal of information in just a few, easy-to-digest numbers. If you see numbers that you don't like, that's an indication that you need to change your approach to one of the following:

  1. Churn Rate

What's churn rate measure? Presented as a percentage, it's the number of people that your company loses each month. While some churn is expected, if your technology business is experiencing this number as a double-digit, there's something amiss with what you are offering. In order to get a more complete picture of what is going on with your churn rate, it's vital that you talk to two distinct groups of people -- those who have been with you the longest and those who no longer use your services. You'll want to ask the first group what makes them stay while the queries you send to the second group will center on finding out what they need that they weren't getting from you.

  1. Gross Margin

Your profit margin should be renamed as your gross margin. Why is this second number -- also presented as a percentage -- a better indicator of how your business is faring when compared to the first? Your gross margin is the part of your sales revenue that your business actually retains after factoring in your direct costs. This is money that your business can then use to pay admin fees, shareholder distributions and other expenses. If your business is operating on a 40 percent gross margin, it means that for every dollar your business generates, $.40 of it can be used to pay expenses such as those noted above.

  1. Number of Users

This one is a simple -- yet important -- statistic. The higher the number of users of your services, the more stable your revenue will be over time. If you notice your user numbers dropping off, do a little digging to find out why. Rather than there being something fundamentally wrong with your product or services, for example, it could simply be that your competition has released a new version, it is offering an unbeatable teaser rate to get people to buy in, or some other, unrelated reason.

  1. Growth in Users

Closely related to the number of users, being able to measure the growth in your users enables you to more easily weather the inevitable ebb and flow of the business world. As the needs of people change, you'll naturally lose some customers along the way. As long as your business is experiencing a healthy growth in its base of users, it will likely be able to recover from any losses. If growth is lackluster, seek out innovative methods of encouraging more.

  1. Sales Pipeline

The sales pipeline is a systemic method of moving through the process of making a sale. It is vital for accountability and to determine at which stage weaknesses exist. These can then be shored up with additional resources, a change in tactic, or other updates to make it more seamless. While the actual number of steps within the sales pipeline can vary, seven seems to be average. These can range from the initial contact, acceptance of a proposal and the closure of the sale, as well as a number of others in between.

These KPIs -- though ever changing -- provide you with a snapshot of your business. While they are broad categories, KPIs enable you to pinpoint areas that can be improved.

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Frank Jenkins Jr

Frank Jenkins Jr

Frank Jenkins Jr. is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, accounting, audit & assurances. "I genuinely care about our clients because I have a personal connection with them. This job requires me to multi-task and work under tight deadlines. I get great professional satisfaction from balancing firm and client commitments while building a strong team here at AJC."

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