5 metrics to track for cash flow
The reason we split the cash flow into separate components in the section above was to make it easier to understand how money is moving through your business. With a tool like ProfitWell Metrics subscription analytics, you can break your cash flow down even further, to get a more granular look at your company's finances for a certain accounting period. While you can use Metrics to track nearly every metric that is important to a SaaS company, we'll focus on the metrics you should be tracking to better understand how cash flows in your business.
We've already explained the difference between revenue and cash flow. Although the two are not the same thing, they are closely related. If your revenue goes up, and all other variables stay the same, then your cash flow should be higher as well. When taken as part of a complete picture, revenue can be used as a predictor for cash flow. Just remember, revenue growth doesn't necessarily mean cash flow growth. If your expenses go up in order to achieve that revenue, your cash flow and profits could take a hit.
2. Burn rate
Burn rate is the measure of how much money you're losing or spending in a given period—a measure of your negative cash flow. If you want to know how much money you'll have on hand at a given point in the future, you need to know how quickly you are burning through it. Unlike revenue and liabilities, money isn't calculated toward the burn rate until it's actually spent.
It's used typically by startup companies to track the amount of spending before it begins generating income, as well as its runway—how long it has before it runs out of money.
Monthly recurring revenue (MRR) is an important metric for SaaS companies. It's the amount of monthly predictable revenue that a company can expect to receive. It's calculated by taking the average revenue per user (ARPU) and multiplying that by the number of users you have. There's a lot you can learn from your MRR and ProfitWell Metrics makes it easy for you to break it down even further for proper financial forecasting and planning, and measuring growth and momentum.
These next two metrics are often grouped together because they make up two of the most powerful metrics SaaS companies can use. Customer acquisition cost (CAC) refers to the amount of money you must spend (usually in sales and marketing) to acquire a new customer. This is extremely important information to know, because it dictates how much you have to charge for products, and can be an indicator of how effective your marketing is.
All businesses have repeat customers. The amount a given customer will spend over their lifetime of shopping with the company is the lifetime value (LTV) of that customer. For subscription companies, who deal almost exclusively in repeat customers, this is an especially valuable metric. LTV fills in the blank between ARPU and retention, giving you a more robust picture of where you stand and the revenue you can expect over the course of a customer lifespan with your company.
When you know how much you will make off a given customer, you can compare that to how much you spent on acquiring them. LTV tells you what you can afford to spend to acquire a new customer. However, this metric's importance goes much deeper, which is where ProfitWell Metrics can help, so you can keep that LTV high and your CAC low.