The Quiet Light Podcast Understanding SaaS Metrics and Forecasting With Ben Murray
One of the misconceptions people often have about Quiet Light Brokerage is that most of our transactions are e-commerce based. In reality, we have got quite a sizeable number of SaaS deals in our portfolio as well. Today, the Saas CFO Blog founder Ben Murray is here talking about his career, the blog, and his passion for sharing the metrics founders need for better planning and forecasting. Through his blog, Ben shares his passion for organizing the numbers, implementing SaaS metrics, and forecasting.
Ben's advice is all about getting the lumps out of the profit and loss. Anyone looking to learn more about the topic both from the acquisition and the ownership side, this is the guy to know and this is the episode to listen to.
Episode Highlights:
- The value in forecasting. Why do it in the first place.
- Things that proper forecasting might protect your business from.
- Software recommendations for businesses looking to get started with inputting the financial data.
- Types of metrics that are important for the owner and potential buyer to dial in on.
- The Rose Metric.
- Numbers a potential buyer should be looking for in a healthy acquisition prospect.
- How deep should the buyer look into the metrics?
- Warning signs to look for in a business evaluation.
- The why behind the data.
- Healthy levels of sustainability in the balance between recurring revenue and sales/marketing expenses.
- How Ben became so interested in the SaaS arena and why he feels compelled to share his knowledge with his readers.
- The cash runway forecast model.
- How to get started in forecasting.
Joe: Mark one of the misconceptions about Quiet Light Brokerage is that some people think we do; the vast majority of our transactions are e-commerce related when in fact we've got quite a sizeable SaaS component as well. And I understand you had Ben Murray from SaaS CFO on the podcast recently.
Mark: Yeah I just recently became familiar with Ben. I was going out and taking a look at some of the people that are writing in this space and just kind of doing some research trying to expand our network in this area and I happened upon Ben's blog and I was absolutely blown away. So Ben is a CFO obviously and specializes in the SaaS arena and talks a lot about the metrics that we want to be able to track in the SaaS world for better forecasting and better planning on the part of SaaS founders. So naturally, I thought I had to have this guy on the podcast. We also sponsored a little ad in his newsletter as well to promote David's webinar. David Newell for those of you that don't know recently did a webinar on how to solve a SaaS business for 6, 7, or 8 figures. We're going to include those in the show notes we'll also make sure that we advertise that in our weekly newsletter if you don't get that; a really, really well received. We've had hundreds of people attend and have had great response from that webinar. We partnered with Ben to help promote that webinar as well. And as I told you Joe just before this call he knows more about SaaS than you and I will ever really know because he lives and breathes this on a day in day out basis. And so we talked a lot about some of the metrics to look at, how to think about some of the metrics, how to calculate some of the metrics in a way that makes sense because we know that we're supposed to be tracking some things like lifetime value, churn, and everything else but how do you actually construct these calculations in a way that makes sense for your business and then forecasting as well. So the topic; I'll be honest, I got a little wide-ranging with my questions because I wanted to ask him every question at once. And it was difficult to stay focused because I wanted to ask every question at once but there's just some really cool nuggets in this podcast including one that you and I talk about all the time and that's cash versus accrual accounting.
Joe: Yeah, most people think about it only in terms of e-commerce but SaaS and content they've got to do it as well just to get the lumps out of the P&L.
Mark: Yeah I mean look it just comes down to this basic concept accounting; double-entry accounting system has been around for a long time and it's been around for a long time because it works. And so we should be making sure that we're actually paying attention to our books in the proper way and understanding what sort of insights we can pull out of this. Ben talks a lot about the need for forecasting which is something that I'm increasingly growing aware of as being an important tool for business owners. And we talked a little bit about how to do that in the SaaS world in this podcast as well so it's super interesting. And I think for anyone that's interested in SaaS both from an acquisition or an ownership standpoint, Ben is a guy to know, this is a podcast definitely to listen to.
Joe: I'm looking forward to listening to it myself. Let's get to it.
Mark: All right I have Ben Murray from the SaaSCFO.com, Ben thank you so much for taking the time for a conversation here on SaaS businesses, CFO and everything metric heavy. I'm really excited for this conversation.
Ben: Thanks Mark, it's great to be here.
Mark: So let's start out pretty simple and give just a quick background on yourself; what you do, and also a little bit about the blog. I found you through your blog the SaaSCFO.com but a little background on yourself so that our listeners know who I'm speaking with.
Ben: Sure yeah. My name is Ben Murray and I've been in finance and accounting for the past 20 plus years and my background has been airlines and software specifically SaaS. And so I've been a SaaS CFO for about the last 8 plus years or so. And about 3½ years ago I started blogging at the SaaSCFO.com where I just wanted to share my metrics, models, templates that I've been using and creating over the years and hoping that others will have; they could use those and implement the models and metrics in their businesses right away.
Mark: Yeah and look there's a lot of people that write on this material, right? I've come across a lot of different blogs that kind of become this intersection of marketing and metrics and company structure and everything else. Yours is really focused on metrics and metrics from a kind of financial outlook perspective and probably a deeper dive than I found in most other places. So I can definitely really, really appreciate what you're doing here on the blog and some of the information that you share. I want to start off with just kind of a big question, your website title is Ben's post on SaaS metrics and forecast; pretty simple. I want to talk about that second half there and the forecasting side of it. I know a lot of business owners and even buyers who are looking at acquiring a business look at forecasts with a bit of a skeptical eye and wonder well what's the real value on them? Now I think people that are growing businesses at a higher level tend to see the forecasts and see the value in them. But I'd love to pick your brain a little bit about the value in forecasting and creating a good forecasting model and maybe what the foundations are for that. So why don't we start with that first question as why forecast in the first place? I mean isn't it really more wishful thinking or is there a real science behind this.
Ben: Yeah there's definitely a science behind it because it really leverages your operational understanding of your business and I really feel you can't forecast until you know where you've been. So really understanding your historical financials, all the metrics around that, and then once you have that then you can put a very good forecast together. But if you don't understand your current financial state it's going to be really hard to create a forecast and obviously, the number one thing is cash, right? Cash is king. So if cash is tight or you think it might be tight you definitely need that forecast to balance resource requests versus cash balances. So that's number one. After that say if you have decent margins then again it's really understanding where your revenue is trending; your margins are trending. And as you scale so you don't get in trouble down the road; if you hire too fast, invest too fast. So forecasts it's definitely I'd say part of science part of intuition but it's really critical I think in any business as you scale and of course just understanding your cash and then the metrics that are coming out of your forecast.
Mark: Yeah, what are some common areas that you see people running into with a lack of forecasting; just kind of sticking their finger up in the air and feeling where the wind blowing today as they're growing maybe a rapidly growing business. You already mentioned one, hiring too fast and bringing on too much support staff maybe anticipating more growth in the future. What are some other things that proper forecasting might be able to protect you from?
Ben: I think when you create that first financial forecast and you have been forecasting it really exposes areas in your business that are kind of weak data-wise. The number one thing is like booking; tracking your monthly bookings whether that's MRR or ARR basis you need to know when new lows are coming in or new customers are coming in any expansion business churn downgrades. So that sometimes exposes that tracking. You're going to be kind of revenue forecast together. It all starts with your booking patterns. So that's one thing. And then it's just basic stuff. What's your current MRR? What are your current customer accounts? How many paying customers do you have so you can put again that revenue forecast together and then it's just understanding where you spend. You know one big thing that I see with SaaS firms is that they're coding all their expenses to one big bucket. And I think once you reach say a million or two ARR you really have to have more sophistication in your financial forecast than you're coding expenses to buy an apartment because without that you really can't create any SAAS metrics from that. So you really need clarity around your expenses as well to see that quite a bit.
Mark: Yeah and so much of this when I give presentations at a conference and I get to the part where I'm talking about keeping good clean accurate verifiable books I get the sense sometimes that it gets glossed over. And I talked to a lot of entrepreneurs who say yeah I know my books are important but then when you find out are they actually managing them well we found out that they aren't and because it becomes sort of an afterthought to it. But what you said there at the end I think is so clear. Once you start having good numbers brought in to the business and you're starting to analyze these numbers it brings clarity to the business as well and being able to identify maybe the risks that are actually present in your company that you aren't seeing because you're not looking at the data. A lot of what you're saying here about forecasting, of course, requires keeping track of the numbers in the right way and you need to start somewhere. For somebody that's maybe at the smaller end of the spectrum in a SaaS operation, say sub one million dollars in revenue what sort of recommendations do you have to make sure that the data that they're getting is A. getting input correctly and categorized correctly and B. do you have any recommended software any recommended systems that you would start out with?
Ben: Yeah I wrote a post because that was a question I was getting a lot on what SaaS accounting software can you recommend. And of course, when I speak with founders 9 out of 10 times their financials are in QuickBooks . So that's kind of a ubiquitous accounting system out there. And I've seen all sorts P&Ls but really it's good organization to your expense categories. Not having too many. Sometimes you see a QuickBooks P&L and it's 50 expense categories and you've got $5 posted in February and 10 the next month; just too much detail on that where a SaaS company is really 70 to 80% employee wages, benefits, taxes, etcetera. So that's the big thing is getting to know your wages classify them correctly; encoded by department. Then it comes down to travel, rent, commissions, so they're big expense categories that are common within SaaS, advertising, that you want to see those coded and classified correctly and kept track of each month so you're not getting behind and have very lumpy financials. So that would be the big thing is just to clearly categorize P&L by expense category and then obviously the other one is just not applying proper reverec which you can't blame SaaS founders that saved some 1 million but they're not playing proper reverec to their revenue. But eventually, you will need that in order to calculate again good metrics, good gross margin and so forth.
Mark: Can you explain that last part a little bit more?
Ben: Yeah, about the reverec?
Mark: Yes.
Ben: So often rates with an MRR business it's not as pronounced where you invoice monthly and recognize monthly but with annual contracts say quarterly, semiannual, annual, multi-year contracts you see a lot of SaaS companies posting that revenue right to their P&L. So, for example, a $12,000 annual contract that should be advertised and recognized over twelve months. They're posting twelve thousand in just one month. You'll see very lumpy revenue that it could be 50 or 100,000 in one month and it's $1,000 a month the next month and I've even seen negative in some months. And with that, you really cannot manage your SaaS business without a proper reverec and that could be finding a SaaS accounter bookkeeper who is familiar with the SaaS business model. But without that, you don't know your gross margins at all. You really don't know what's going on with your business kind of on a good steady run-rate basis. So again under a million, I get it. A million and two and scaling you definitely have to get to that point.
Mark: Yeah. And so in our world again we've talked about this a lot on this podcast and pretty much every chance I get. And it's that simple difference between accrual and cash basis counting, right? Instead of saying oh I just got $12,000 in on an annual contract saying well I have an annual contract which means I need to service this client for the full 12 months and that equates out to $1,000 a month which I'm earning as I go along with this contract. It's kind of a foreign concept to a lot of people. But again the importance here is not treating the P&L like a statement of cash flows only and treat it again as a profit and loss statement. I would imagine Ben, this is something I didn't see on your site but I'm sure you've covered because your site is extremely comprehensive, it would make sense at that point to look at your financial statements and understand the balance sheet is going to be important in here as well. What role do you see and let me see if I can back up; I'm kind of all over the place right now but I'll ask this in a very basic way. I know a lot of people are kind of scared or mystified by the balance sheet. How much emphasis do you think people should put on actually getting familiar with the statement like that or do you think it's more important to look at some of the other metrics instead and focus on those?
Ben: Yeah I think say as a founder-owner you do need to understand the balance sheet to some extent because the SaaS balance sheet is a little different than others. One obviously is deferred revenue, so in the example, we talked about when you invoice that 12k it's actually posted at the balance sheet as deferred revenue; as a liability, because you have an obligation now to say perform or to service that customer. The second thing with the new reverec standards you now have to capitalize the contract costs that arise when signing contracts with customers, for example, enabling commissions now that becomes an asset on your balance sheet. So that's the second area that's different with SaaS and that's actually new and then, of course, capitalizing software development. You can also capitalize software development once it reaches technological feasibility. And again that's another asset on your balance sheet. Other than that SaaS balance sheets are pretty straightforward but if you're applying the proper accounting you probably will see; you definitely should see deferred revenue and probably capitalized commissions.
Mark: Yeah I can kind of hear the collective groan from people listening thinking well I thought we're going to be talking about SaaS metrics here and here we are back in the old accounting stuff but this stuff plays together, right? I mean when we go into some of the other more advanced metrics that you're talking about it depends on having those books done correctly so that you can pull out the right metrics and the right ratios that you're looking for. But let's get into some of those other metrics and just kind of a very basic question here, what do you consider especially forward for companies that 1 million maybe 5 million 10 million and then above as we kind of work up the strata here, what sort of metrics would you generally say are really important for an owner or potentially an acquirer to really dial in on a SaaS business?
Ben: Yeah I think once you're past that early stage where you really have to manage your cash flow I mean it's going to be your go-to-market, sales, and marketing efficiency metrics and that's something I'm constantly looking at. So it's really all; it becomes a lot about the go-to-market efficiency. One are your inbound or outbound sales engine and marketing engines and then one metric that's a favorite of mine is cost of ARR, cost of MRR where you're looking at your ARR and MRR bookings and comparing that against your sales and marketing expense to see how much it costs you to acquire one that new dollar or ARR or MRR; that's a big one. And there's a great survey out there, a SaaS survey put out by KeyBank each year that provides those private company metrics so you can compare how you're doing against other SaaS companies who put data into that survey. So it's a great benchmarking tool. But again there are a lot of sales and marketing efficiency metrics that yeah as you're scaling, how efficient are you, how much cash is going to be required to hit your booking plan, and then really just that balance; it comes down to that balance between bookings and sales marketing.
Mark: Yeah that's great. Let's talk employees it seems to be one of the costs that seems to kind of spiral out of control with SaaS companies on occasion right? The cost of supporting the clients can be higher and higher. You have something on the blog which I'd just kind of chanced upon which you came up with called the Rose Metric. Can you explain that a little bit?
Ben: Yes sure. Again it kind of gets back to the concept that really a SaaS company or any software company is all about the staff; the employees because that's the major expense or as I call merits that investment in the business around your staff. And you see that revenue graph that you metric out there is kind of a general gauge around efficiency which I think is just too high level; too generic. So I want to look at really it's so important that your investing employees, that employees are happy because they are creating that software company; they're creating the product. And really comparing how efficient are we in headcount wages versus the bookings coming in. So it gets you kind of a balance of as we scale what resources do we need to support our bookings plan or rounding plan and just see how efficient we are in acquiring new MRR or ARR against our kind of employee headcount or employee wages.
Mark: Yeah it's an interesting piece and again I'd recommend people take a look at the blog and kind of dig into some of these employee metrics. It's one that we don't see as much in our world and I think it's an interesting one to take a look at. From a merger and acquisition standpoint if you're a buyer coming into a business and trying to evaluate it where are you going to begin looking at a company's books? What sort of numbers are you going to be looking at in trying to calculate within that first day as you're trying to see is this a good opportunity and a healthy company?
Ben: Yeah obviously the first thing you're going to look at is just are they good books are you inaudible[00:19:12.5] accounting so they're good financial statements. And then after that, it's really understanding the health of the recurring revenue because a lot of valuations are based on almost full of ARR or MRR and then also EBIDTA. So really when I look at it you know it's really looking into that recurring revenue; so the bookings data, what's your gross dollar retention, net revenue retention, how many logos are you losing per month, how many dollars are you losing per month, and churn and dock rates. And then of course if you've got multiple products it's understanding all of those metrics by the product lines. Because that's what you're really buying is the recurring revenue stream and of course any profitability or lack of profitability that goes along with that recurring revenue stream in the form of EBIDTA. So those are the same first things that I dive into is really understanding the revenue streams and then really the business model; what does it take to support that recurring revenue stream? Do you have tech support? Do you have CSMs? What's needed support that revenue? And then, of course, another big thing is to go to market engine; understanding sales and marketing, how they're acquiring customers, how efficient they are, and then of course looking into GNA, RND, the product roadmap etcetera.
Mark: Sure absolutely. As far as dealing with a company with weak books like of we're evaluating a company that maybe has this lumpy revenue because they're recording everything on a cash basis. Are there ways that you can suggest that would not involve a whole deconstruction of books but maybe to be able to evaluate a business that has weaker books or weaker data tracking practices?
Ben: Yeah if you really can rely on the financials for the revenue stream then you have to really build a backup through their bookings data or their invoicing data. So getting say a couple years of invoicing history of their subscriptions; so dollar amounts, start and end dates, it helps if you knew is this a new logo expansion etcetera so that you can reconstruct what the revenue stream should look like and then get back into you know what kind of expansion are you seeing, churn are they seeing so you can build out that revenue stream if it's not; if they're not [inaudible 00:21:30.3] to the financial statements.
Mark: Sure. What would be some warning signs that you would look for an acquisition? Obviously, you said you would really look at the health of the recurring revenue. How trustworthy is it? Also the go-to-market cost as well. What are some things that would be just kind of a deal-breaker for you if you were evaluating a business?
Ben: I mean a couple of things would be looking at again I think it's going to be around churn and payback periods. So payback periods are extremely important. So how fast are you paying back those upfront customer acquisition costs. So one looking at their cash balance, of course, are they trying to [inaudible 00:22:10.5] fund working capital through lines of credit or debt that their business model isn't quite working for some reason or the payback period is too long or they have just too much cash tied up in check. And then, of course, new logo acquisition, do they have the go-to-market model proofed out or product-market fit and then again just is churn under control, can they acquire customers but then can they retain them over time. So again those are some of the things that if you see warning flags; you might see some warning flags there that the metrics just as a whole don't add up together.
Mark: Right. You mentioned payback periods. This is something that I've ran into a number of times where I see somebody pretty plainly put out there hey my LTV is this my CSC is this so look I'm going to acquire the customer for 80 bucks the lifetime value is $400 and you're going to make a great return on your investment on that. But when you dig into it a little bit deeper you find out that if you take like an 80% cohort, if you're taking a look at the majority of customers the lifetime value is much lower. There are a couple of unicorns in there that are pulling in this really high value. What are some ways that you can recommend dissecting this when you get this kind of flat up numbers of my lifetime value is X and my cost of acquisition is Y so, therefore, you're going to make that killing on this business. How can you sort of dissect that and actually get some better insights there?
Ben: Yeah especially with LTV because that can be so sensitive to the denominator or what churn number you're using as the dominator. So you really have to understand what inputs they're putting themselves because that lifetime value can be all over the place. So again you mentioned cohort analysis, are they taking the cohorts, are they using aggregate churn or are you looking at really with check and payback periods you should be looking at it's really a point in time like the cohort analysis that what's the most recent cohorts coming in and the paybacks on those and also lifetime churn from the cohorts say from the past 12 months. So you really have to I think look at the details on the numbers that are building up into those formulas to really prove out what they're saying that they can really claim great numbers.
Mark: Yeah, it's one of the reasons that LTV to me I'm not a big fan of that metric on its own I mean it's interesting but I think it's just kind of a live number way. It doesn't color a whole lot when you're looking at it by itself, right? It can really take you to a lot of different factors.
Ben: Yeah and I definitely calculate LTV it's interesting because I think SaaS metrics in isolation don't mean much. You kind of have to look at the big picture obviously it's LTV to check but also looking at cost of ARR payback periods. So maybe it's one data point but it's not telling the whole story. So I do look at LTV but again I think say cost of ARR or the payback on that is a much easier way to understand. And LTV I still think is kind of a ballpark because it's always changing and it's such a sensitive calculation that it's not the number to just look at alone.
Mark: Yeah. A question I get all the time from people and it's really basic in your world so I apologize for even asking this but people ask me all the time well how am I supposed to calculate my lifetime value, how am I supposed to calculate my churn when I have people that are still; that have been with me from day one? And these numbers sometimes can be difficult to calculate because of that or even people that are dropping off but then coming back on and then dropping off again and then coming back on.
Ben: Yeah. I hear that a lot too. Yeah especially if you're a couple of years in you really don't know your lifetime value yet. Again it's just a formula; it's a calculation so it's a ballpark but you don't really know true LTV yet if you've just been around a couple of months or a couple of years. And then the whole dropping off dropping on back on that's where it just becomes almost company-specific that you really just have to define internally what does a new customer mean, when does it really mean that they churn so that everyone within the company understands that. And if you're in any sort of M&A then that's clearly; that you're transparent with how you're actually tracking those stats.
Mark: Yeah. And I think that part right there that point is probably the key that I think is so important especially from an acquisition standpoint. If you're looking to acquire a SaaS company and you're just looking at the metrics on the surface how does that seller define those metrics within their own company and why did they set up those rules because with multi churn you can look at that in a number of different ways. You can calculate that number using different approaches the same way with LTV numbers you can use different approaches and get different results. So why did you choose a certain method; why did you choose a certain approach to this? And that's the color I think from an acquisition standpoint that starts to get really important when you're looking at any of these metrics is understanding the why behind what data is being presented and then the rules and applying a sanity test to it. Are these people just giving numbers because that's what they're supposed to pick or are they actually looking at these and using these metrics within their company, yeah just a really good point on your side as far as understanding the metrics and where they're coming from? Moving beyond that cost of acquisition, moving beyond the lifetime value numbers and you've mentioned a few times the going to market costs as well, what are some health levels for the sustainability of ARR or MRR on a SaaS business.
Ben: You mean as kind of as far as the balance between recurring revenue and sales marketing expense?
Mark: Yes.
Ben: Yeah, so healthy levels, the things that I look at and this is probably more mid-market enterprise but usually if you can acquire bookings for $1 of a new ARR for a dollar of sales market expense that's pretty good. So again there are some surveys out there that kind of give you some benchmarks and that's kind of you can say in whole new logo and expansions of course expansion in ourselves should be a lot cheaper than acquisition, maybe that's 30 to 50 cents of sales and marketing expense acquire one net new dollar of ARR. So certainly it's just that you look in and if it's higher you just need to understand from that business why it's taking longer and what's the story behind go to market. Is that a longer sales cycle that's impacting the [inaudible 00:28:48.6] so just different things to really understand their business model.
Mark: That's great. I'm going to just take a quick break from some of that heavy metric discussion here because we're throwing around a lot of acronyms right now. How did you get your start in this rollout? You said that you had experience in the airplane industry and then also in the software industry. How did you get to be so passionate about this and kind of digging in as deep as you do?
Ben: Yeah well I guess one that you really loved forecasting and financial forecasting though in Excel models and you kind of build-up that tool kit over time and just really enjoy it really understanding the economics of businesses and especially software is so interesting and yeah I did start in the airlines which is also kind of metric intensive and very financially disciplined and I kind of applied that to the SaaS areas. So I just noticed out there a lot of resources on SaaS but it didn't quite I felt go far enough or really just give you the whole story and the template that they were using it kind explained it but then you might have to go do an hour or two of work to recreate what that person did. And so I said; I thought you could be a little different by just providing the exact models, the templates that I'm using and hopefully the bits and pieces of those would be applicable to some people in SaaS that they could incorporate into their business and I received great feedback from readers, subscribers downloading templates that it's helped them out a lot, founders that are trying to do their first forecast. So I just wanted that kind of transparent value exchange out there and it's just really from my kind of on the job experience as a SaaS CFO and just things I encounter every day that are pain points for me that could be pain points for others and just help them out with maybe something with a template that I've used to solve some of those problems.
Mark: Yeah you have all these comments on the site from people who have written into about the resources and I love the one here that says great resources that save a lot of time and brain damage to replicate. It's very true. Again there's a really good stuff on here. You brought up forecasting again so I'm going to start to bring this full circle here back to forecasting because we talked about that and it's a topic that I'm personally very interested in as well right now. You have a whole page here on the cash runway model. Can you explain that at a high level and maybe we can get into it a little bit?
Ben: Yeah definitely because I have my financial plan out there that I live in Excel every day that I kind of take it for granted that other people can also open up Excel or just dive right in and for a lot of people it's still a little too advanced so with kind of that you could say advanced side of financial planning model. So I tried to create something very basic and it is really inspired by a founder I talked to who said that he got some funding just with a super basic cash forecast. So I thought well how could I take that and just make it super simple say for founders and non-excel people to just start inputting even it really gets to their cash invoicing. So they really could forecast their cash balance and how long that balance is going to last. If they funded it and then they're looking for investments that they could say hey here's my cash invoicing coming up, here's my headcount, here are some other metrics; that major expenses and then just forecast their cash balance in one tab. So that was the genesis of it just trying to really boil down to really something basic that founders and again non-excel people could hopefully use right away.
Mark: Yeah. And you have this template available on the site. And you didn't actually answer it's kind of the question I was going to lead into and that is how does somebody get started with forecasting if they don't have the resources for a CFO like yourself what are some basic models that they can put together to start forecasting their cash flow?
Ben: Yeah, definitely. I think really it's understanding their invoicing patterns; so what is your cash coming in whether that's funding or just the invoices you're sending out to your customers or their credit card payments they're making online line through your site. So that's really the first step. It's just that cash in. And then it's going to be headcount. Again headcounts the majority of expense for SaaS company so really and I'm quite informal as to how do we easily calculate and forecast that expense. So whether you've got one person 850 cut that into model, forecast that expense out. So the second thing again is headcount. And then any other major expenses, maybe it's rent, maybe it's tradeshow, advertisements, so it's kind of that 80-20 rule start with those big expenses; start with the big invoices as a place to start to put together kind of a basic forecast.
Mark: Right then as with all things you can refine that as you go along and improve it and make it more accurate and you can look back to see how accurate was our forecasting and get the insights that you need from there and be able to really plan out what's going on or if you're looking for funding obviously very useful for that as well. This has been really interesting and maybe a little bit of a scattered conversation because I want to talk about everything at once. That's my downfall. I've never really claimed to be the greatest podcast host in the world but there is just so much here to be able to discuss. We are up against the clock at this point though and so I want to give you the chance to kind of round it out and with what you do you obviously have a passion for a lot of this in you being able to help out a lot of people. What are some of the common problems or common questions that you get at the blog and what would you say to SaaS founders currently operating a business right now or those that might be looking to get into this through acquisition?
Ben: Yeah I mean the kind of questions or problems that I see really one is just how do you calculate this stuff, how do you calculate these metrics, what are the inputs? And that really comes back to just a nice clean P&L that you take the time; make that investment through your bookkeeper or accountant to really set up a well-organized P&L because that's where all the metrics emanate from. And if you don't have that it's going to be really hard to calculate the metrics and really have that financial transparency to manage your business. So really again it starts with what's your SaaS P&L and I try post on there on my site kind of walking through from bookings down to income; what the major components of the SaaS P&L are and again it's getting good organization and good fundamentals there and then you can build upon it then you can start forecasting then you can calculate metrics. So again it starts with I think a nicely organized SaaS P&L.
Mark: You know I had Babak Azad who was with Beach Body; he grew that company into a billion-dollar company and he was talking a lot about the metrics that they use there and I asked him a similar question about how do you get started; how can you start tracking this and his response was just what yours is and that is just start; you just have to start with it right. And your advice to start with a P&L and having that set up correctly. It's what we've been preaching here at Quiet Light Brokerage for a very, very long time. Get those books in order. You want to have those books in order. It doesn't matter if you want to sell or not. As a business owner having good financial records it's irreplaceable. Once you get it you will be so happy that you've had it. But it starts with how you're inputting it. I've run into bookkeepers; maybe you have as well but I run into bookkeepers especially when somebody hires them remotely who kind of don't want to do an accrual basis books because they consider it to be more difficult but it's the proper way to do it and as you said all the metrics derive from there. Alright, one last time Ben where can people find you? What's the best way to contact you?
Ben: Sure you can contact me through my site. It's the SaaSCFO.com and then actually later this month I'm launching the SaaS Academy.com. It's an online digital course for SaaS metrics and more so that's coming out soon as well. But definitely my blog you can contact me through to the site.
Mark: That's fantastic. Thanks so much for coming on. I hope to have you on in the future. In the future, I'll choose one topic and I'll stick on that for the entire topic but thank you so much for this really good overview episode. I really appreciate it.
Ben: Alright thanks, Mark. Thanks for having me.
Links and Resources:
Ben's Blog post: The ROSE Metric