How Much Money Are You Really Making From SaaS Sales?

Thomas Taylor - Saturday, April 08, 2017

How do you know if you're making money from your SaaS sales? It's easy right? If you sell it for more than it costs you.

Anyone that knows anything about SaaS is harrumphing right now.

Accounting is based on the overarching requirement to match income to expenses in any particular period. To provide a true and fair view of the performance of the business (the absence of any material misstatements if you will). That's not easy with SaaS businesses.

Firstly a lot of smaller businesses run "cash accounts". What that means is that income is shown in the books based on what's booked in any given month. Obviously, a critical number to know but that's not how accountants measure income. They use "accruals" to spread the income out over its contractual life. So if you sell a subscription for a year then each month a twelfth would go in the P&L. That's effectively the same measure as MRR (monthly recurring revenue).

Which should you measure? Both. Just be clear what each means.

Next, what does it cost you? There are the direct costs of hosting and delivering the software, plus the costs of support. There are the costs of customer acquisition. For that to be meaningful you really need to know the lifetime value of a customer. Finally, you need to amortise R&D costs.

You might also provide consulting services. And that can muddy the waters.

My view, for what it's worth, is to spend some time defining the most important measures for you - and then to stick to them until circumstances substantially change.

Have these measures become shared language within your organisation and report on them regularly.

We can help you do that .

 

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