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SaaS Industry - Resources for Profitability
The Software as a Service (SaaS) business model is quite unique.
Until advent of SaaS, most industries that had enjoyed Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR) were insurance companies, public accountants, and other professional services.
When SaaS industry started to come on strong, the need to identifying the proper SaaS metrics became necessary.
- How do you account for SaaS sales?
- What is the proper SaaS financial model?
- What is MRR?
- How do you build a SaaS business?
All these questions have culminated in specialized accounting and measurement. From MRR to Churn to LTV, the tracking and acronyms have become specialized and extremely important.
Below are some of the resources for profitability that a SaaS business should consider. While the items discussed below do not encompass everything from the industry, they do point the start-up and recently established SaaS company in the right direction.
At Hovland Forensic & Financial we love working with SaaS companies and look forward to talking to you about your virtual chief financial officer needs.
Revenue, whether one-time, monthly recurring (MRR), or annually recurring (ARR), is important part of the Software as a Service (SaaS) industry. However, revenue is just one part of the equation for business success. The collection of the cash is the other half of this equation. Cash is critically important to any business. Collections of cash and converting processes into liquid assets is the key to businesses survival.
Liquidity in the SaaS financial model is essential. So how can a SaaS business improve their liquidity?
Software as a Service (SaaS) Profit margins are the first identifying financial metric that a SaaS CFO will review. The profit margin can be managed by both sales (price per service/project) and cost of sales (primarily labor). The management of these two variables can greatly determine whether a SaaS company is going to have a profitable year or lose money.
Besides adjusting the sales prices or employee wages, what are the things the company can do to develop favorable profitability trends?
Monthly Recurring Revenue (MRR) is a normalized measure of predictable recurring revenue expected to be earned. In the most simplistic version, a business would multiply total customers by the monthly subscription amount to come up with revenue. However, the key point in the definition to MRR is the term ‘normalized’. There are certain factors that must be accounted for in the MRR formula
For a limited time, Hovland Forensic & Financial is excited to offer a Free exclusive SaaS CFO review for your company. You review includes data to help understand your company’s overall performance. This custom service is usually reserved for our clients. But understanding the industry in depth is imperative so, for a limited time we’re giving it to you without any strings attached.