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SaaS Definitions
Summary Financial Metrics
Summary Financial Metrics
Summary Financial Metrics
Metric
Notes
Context and Analysis
Critical?
1
Billings (invoiced this month)
Customers may be billed in advance of when revenue can be recognized.
Show this quarterly with 12-18 months ROLLING forecast.
Yes
2
Revenue
Revenue needs to be calculated according to accounting standards (Generally Accepted Accounting Principles, "GAAP"). GAAP revenue recognition can be nuanced, but it can generally be recognized when:
1. Persuasive evidence of an arrangement exists (a fully executed contract).
2. Delivery has occurred or services have been rendered (for SaaS, when a subscription starts).
3. The seller’s price to the buyer is fixed or determinable (i.e. no right of return, which is generally not applicable to a subscription business as you can't return time on a platform).
4. Collectability is reasonably assured (if you expect that a customer won't pay you can't recognize revenue; however, if you've billed them and expect them to pay, you can recognize revenue).
Revenue is typically recognized monthly, so it may vary from Billings. Revenue, Gross Margins, etc. should be split between Recurring Revenue (e.g. licenses) and Services.
Show this quarterly with 12-18 months ROLLING forecast.
Revenue growth and the components of growth over time are critical. Revenue growth (more so than bookings) is the most significant driver of company valuation and exit value.
However, revenue growth must be sustainable. Many early-stage companies have a "bookings at all cost" approach to growth, which eventually comes back to haunt them when customers churn, the sales process isn’t repeatable, etc.
Yes
3
Cost of Goods Sold (COGS)
Show this quarterly with 12-18 months ROLLING forecast.
Yes
4
Gross Profit
Gross Profit = (Revenue - COGS) / Revenue
This number is expressed as a dollar value. If your company captures multiple revenue streams (i.e. products vs. services), it’s best to calculate this for each revenue stream.
Show this quarterly with 12-18 months ROLLING forecast.
Yes
5
Gross Margin
Gross Margin = Gross Profit / Revenue
This number is expressed as a percentage. If your company captures multiple revenue streams (i.e. products vs. services), it’s best to calculate this for each revenue stream.
Show this quarterly with 12-18 months ROLLING forecast.
Yes
6
Operating Expenses
Should be expressed in dollars and percentages. Show this quarterly with 12-18 months ROLLING forecast.
Yes
7
Sales & Marketing
Should be expressed in dollars and percentages. Show this quarterly with 12-18 months ROLLING forecast.
Yes
8
Research & Development
Should be expressed in dollars and percentages. Show this quarterly with 12-18 months ROLLING forecast.
Yes
9
General & Administrative
Should be expressed in dollars and percentages. Show this quarterly with 12-18 months ROLLING forecast.
Yes
10
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
Based on GAAP recognized revenue.
Should be expressed in dollars and percentages. Show this quarterly with 12-18 months ROLLING forecast.
Yes
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