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.
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.