The SaaS P&L Explained – Where Metrics and Margins are Born

SaaS P&L Explained

The SaaS P&L Explained – Where Metrics and Margins are Born

You can’t manage a SaaS business by only using the standard financial statements.  To really understand the underlying economics of your business, you must have a properly structured “software” P&L (Profit and Loss Statement), and you must calculate the relevant SaaS metrics and margins for your business.  The SaaS P&L Explained “infographic” below walks you step-by-step through my SaaS P&L.

Inspiration

Recently, I was listening to David Skok’s interview on SaaStr, and he mentioned the idea of a SaaS Hierarchy of Metrics.  My interpretation was this.  On the surface of a P&L, you really can’t get to the whole story of what is happening with your SaaS company.

For example, if your MRR missed forecast or budget, you have to dig deeper and understand your bookings which in turn leads you to your sales funnel.  And then you ask, for example, are we calculating sales conversion points to understand how many cold and qualified leads need to feed the sales funnel?

Or are your margins not increasing as expected.  Have you calculated your CAC or CAC Payback Period or your Average Cost of Service?  If these metrics are out of alignment, your margins could be suffering as well as your cash.

Yes, The Onion Peel Reference

With SaaS financials, there is always another layer to peel back to expose the source of strength or weakness.

Listening to the SaaStr interview inspired me to create my first Excel infographic that walks you through my SaaS P&L.  A properly structured P&L and Chart of Accounts (COA) are the first steps to properly calculating your relevant metrics and margins.

In each box, I list a “Relevant Metrics” line that could be up line or down line metrics that originate from this area of the P&L.

You can copy the image by right clicking on the image to save for future reference.

To download the Excel file, please enter your valid email below (no spam) for the instant download.  I’ll keep you updated on future SaaS Excel models.

If you do not receive the download, please contact me.

How do you structure your P&L?  By no means is my P&L the only way.  Please post comments or feedback below.

The SaaS P&L Explained

2 Replies to “The SaaS P&L Explained – Where Metrics and Margins are Born”

  1. Hi Ben;
    Thanks for your post. As a former CEO, I was often reviewing our P&L, revenue forecast, and sales pipeline. As you point out, there are a lot of details behind the topline numbers and some of those details are the dominant drivers (Key Performance Indicators – KPIs) that have the greatest effect on the P&L components. And these dominant KPI are likely different for different industries and business models, so it is particular helpful to see your breakout of the KPI for a SaaS business. Thanks.

    Your infographic identifies a metric “revenue per AVG FTE”, which in the spreadsheet is $13,000. While this is a useful metric to monitor efficiency, I think there are other “headcount” related KPIs that can be forward looking. For example, “Bookings per Sales FTE.” can reflect the health of the pipeline and future revenue of the company. Others include “New signups per pre-sales support agent.” Also, another important metric to track that can affect churn is “paying subscriptions per support agent.” Do you have any SaaS norms to share that would bound the acceptable range of these two metrics? I am particularly interested in the case where B2C inbound marketing, SEO, SMM, and website subscriptions (light sales touch) is the primary sales funnel.

    Thanks again for a great infographic.

    1. Hi Tom,

      Thank you for the reply. Yes, Bookings per Sales FTE or the Sales Coverage Ratio is a simple yet effective metric to measure in your P&L and forecast P&L. You can easily see if your bookings forecast is realistic or not.

      If I run across the metrics you are looking for, I will let you know.

      Ben

Leave a Reply