How to Control Your Cash Position and Reduce Customer Churn with SaaS Metrics

By Heather Roukoski | February 14, 2023

For SaaS CFOs, guiding the direction of their company is a lot like someone steering a massive ship. The ship itself is so much larger than the person controlling it that it seems almost shocking that they can exert so much influence over the vessel’s direction and trajectory.

In an accounting department, your “helm/steering wheel” or primary point of control is your SaaS metrics. A ship’s wheel allows a single person to guide it through stormy waters, and your metrics allow you to maneuver your company through the markets bringing everyone along with you.

This article will help you heighten control of crucial accounting issues:

Strategize effectively around resources: Knowing exactly how much money you have at your disposal and how long you can expect it to last is essential. We’ll give you the tools to help that happen.
Keep a lid on your churn rates: For recurring revenue companies, churn is always a non-starter. Do you know the different types to monitor and the various strategies you can use to decrease both of them?
Centralize for massive results: In today’s world, manual data transfers are one of the biggest wastes of time for SaaS accounting staff and leadership. Reconciliations are the #1 thing that Finance teams dislike about their jobs. If your team is still losing time tracking down data through endless mazes of emails, we can show you a better way.

What’s the first question you need to ask yourself to start taking more control of your company’s finances? Let’s find out.

What is your cash burn rate?

Cash burn rate (CBR) is one of the best metrics you can use to get a clear image of your company’s finances and cash flow. It tells you how long your money will last, given your financial obligations. In other words, it’s equivalent to your financial runway.

Knowing where your recurring revenue company stands with its CBR matters significantly. A pilot can’t get a plane off the ground if the runway is too short, and a SaaS CFO can’t take a company further than its financial runway will carry it.

This metric is an inseparable part of your cash flow situation. It helps you plan for future hiring decisions, marketing campaigns, product rollouts, and other financially essential activities.

Your CBR is divided into the following types. Each one is ideal in different contexts, depending on the data you’re looking for:

Gross burn: Your gross burn tells you how much money you spend per month. It doesn’t factor in your revenue or anything else: it’s purely a measurement of your SaaS company’s financial liabilities.
Net burn: Your net burn is similar to your gross burn but includes your monthly revenue. It offers a more complete picture of your company’s financial position. To find your net burn, subtract your monthly revenue from your gross burn.
Runway: To calculate your financial runway, take your total cash holdings and divide that figure by your net burn rate. The result will be a financial runway measured in months.

Maintaining a sense of realism about cash flow is invaluable for recurring revenue firms, especially when times get tough. It will help you keep a clear head about what matters and what doesn’t when you’re forming plans for the coming financial quarters.

Can you add as many new sales staff as you were planning? Is your marketing budget for the next quarter going to be lower than anticipated, and if so, by how much exactly?

With automated SaaS accounting software, you’ll be able to find your CBR easily and combine it with robust forecasting to answer complex questions like these. Just plug in your starting data, and you’ll be able to generate forecasts for layered, multi-factor scenarios.

Getting a handle on churn rates

In his landmark business classic, The Effective Executive, Peter Drucker says that the point of a company is to create and keep a customer. Understanding and proactively managing churn deals with the second half of that process.

A certain amount of churn is unavoidable for SaaS companies. But as soon as you notice it happening at a rate that concerns you, do your best to answer two critical questions.

First, why are customers churning (or churning in higher-than-average numbers)? Second, what measures can you take to plug those leaks as quickly and fully as possible?

The reason behind churn varies depending on which of the two types of churn you’re looking at. Voluntary churn occurs when users have actively chosen to unsubscribe from your services for one reason or another. On the other hand, involuntary churn happens when users cannot complete their subscription transaction and are automatically churned for that reason.

Involuntary churn is an easy fix. If it comes down to an issue with your payment processor, it’s simply a matter of getting everything patched up on your end. If the problem is on the customer’s side, they’ll need to update their card info.

When the issue is voluntary churn, your customers might be leaving for any number of reasons. You may be pricing yourself out of the market relative to your value offering. You may be missing service options or product features that your customers would like access to. Automated accounting software can offer detailed tracking of your churn figures.

Once you’ve determined that voluntary churn is the reason for dwindling subscription numbers, it can be very useful to look through customer reviews and forum content for your industry. In those spaces and other types of user-generated content like social channels, customers will often directly say why they churned from your service or similar ones. All you have to do is listen and take notes.

Now that you know how to manage churn, let’s move on to the third vital way that SaaS CFOs can increase their level of control over their department’s direction.

Save time with role-based financial dashboards

One of the biggest wastes of time for SaaS accounting companies is manual data transfers between departments and team members. And beyond just being an unprofitable use of time, it opens you and your colleagues up to many different (and potentially expensive) mistakes and inaccuracies.

Cloud-based accounting software uses consolidated financial dashboards to give finance leaders immediate access to all the data they need. In a single glance, your team leaders will be able to see everything they need to keep track of:

CFO Dashboard: Instantly view your assets, expenses, net income, detailed and categorized cash flow data, and much more in one convenient screen. As a CFO, don’t you have too much on your plate to be hunting down your data manually?

Controller Dashboard: Controllers have a considerable amount of data they’re responsible for keeping track of. They need seamless access to salary and wage info, cash flow metrics, budgeting data, and much more.