Key Performance Indicators (KPIs) for Software-as-a-Service (SaaS) Companies – CASH
During their expansion stage, a lot of SaaS companies find themselves in a stage where the volume of their revenue and customers accounts put them far ahead of the new startup companies, but their financial infrastructure is far from being well established for successful scaling up and is far from being aligned with the company exit strategy. In previous blog posts I discussed Churn Rate, Monthly Recurring Revenue (MRR), and Committed Monthly Recurring Revenue (CMRR) for the SaaS companies. In this blog post, I will discuss a KPI that presents a modified version of the Cash.
Today’s KPI is Cash. Cash is one of the most important performance indicators due to the nature of the SaaS business where the working capital is very high and it takes a lot of initial resources to come up with a good product, while the repayment occurs over a long period of time. Furthermore, a lot of the booked revenue is realized on a monthly basis over the life of the contracts. Therefore, managers have to first be extra creative in order to encourage their customers to use prepayments, and second, to be very vigilant with the levels of cash reserves the company has at disposal. If they are not and they overspent, the company could prematurely end up in line for extra venture capital or high interest bank loan.
Therefore, Bessemer Venture Partners advises in its research paper on the SaaS KPIs that the compensation for the SaaS companies executives (mainly CEO and CFO ) should be closely related to the company’s Cash and CMRR.
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