Learn all about the one tool companies use to manage delayed payments and mitigate potential damage to their cash flow: the Accounts Receivable (AR) Aging report.

There’s a reason most late payments are rewarded with fines: cash is king, and companies need to know when they can expect to be paid. The longer a bill remains unaddressed, the higher the risk of nonpayment. In this post, we’ll discuss companies’ primary tool to manage these delayed payments and mitigate potential damage to their cash flow: the Accounts Receivable (AR) Aging report.

What is an accounts receivable aging report?

The AR aging shows due dates (and past–due dates) of unpaid customer invoices. This table helps you visualize how many invoices are outstanding and which are past due. It is an important financial reporting tool for business owners to track outstanding balances.

The accounts receivable aging report summarizes how much a customer owes within specific date ranges, often 30-day increments as of the report date. By sorting unpaid invoices into date ranges from the invoice date, it helps gauge the collectability of a company’s receivables. This supports essential collection functions, allowing you to prioritize contacting customers with older invoices first.

Logically, if your customers signed a contract with you, there was an intent to pay, and a significant delay between invoicing and payment is often a sign of big problems (customer financial instability, product quality issues, implementation delays, etc.). After all, delaying cash outflow is a customer’s final lever when things aren’t going well. Monitoring accounts receivable aging is critical for tracking the total amount due and past due invoices.

Benefits of reviewing accounts receivable aging

There are quite a few benefits to your company keeping an AR aging or AR aging report:

First, aggregating aging data across customers in the report lists allows you to assess the risk within your accounts receivable balance. If a customer’s average Days Sales Outstanding (DSO) is rising, it’s time to evaluate their contract’s payment terms and credit terms.

If many customers’ DSO are trending upwards, revisiting credit policies (think interest, late payment fees, or early-payment discounts) should be in your future. This allows clients to review and plan to pay their invoices within the aging categories or specific period outlined in the report, which can be especially helpful to smaller businesses with potential cash flow problems.

Additionally, reviewing the accounts receivable aging will help you identify potential delays in the company’s cash flow by uncovering credit risks. By seeing these risks in the report, you can take preventative measures to protect yourself from more risky customers.

AR aging reports also allow you to make strategic decisions about the collection process. For instance, if your customers aren’t paying until the 60-90 day mark, it’s time to consider new collection methods or maybe even enlist a collection agency.

Finally, the doubtful accounts information in an AR aging report shows your company’s receivables that may need to be written off to the company’s bad debt expense.

How to create an AR aging report

You can’t possibly improve your company’s cash flow without first understanding its state, right? That’s why you need an AR aging report ready. Throughout this section, we’ll take you through each step in creating an accurate AR aging report for your business.

Collect unpaid invoices/outstanding invoice data

The first step in creating an AR aging report is collecting all unpaid invoices’ data. 

This includes gathering information on any outstanding invoices past their due date. Be sure to include the invoice date and due date for each unpaid invoice. Suppose you don’t already have this information at the ready. In that case, you may need to pull this data from your accounting system, customer invoices, or other sources that contain the invoice date and due date for all outstanding customer balances.

For example, with Maxo, you can access all your unpaid invoice data in one place with the relevant dates. This allows you to accurately categorize invoices into the appropriate aging buckets when creating your report.

Maxio’s Accounts Receivable interface

Maxio’s Accounts Receivable interface (Source)

Calculate the number of days past due

Once you’ve gathered all unpaid invoice data, the next step is to calculate how many days past due each invoice is. To start your calculations, you’ll first want to look at the due date for each unpaid invoice and compare it to the current date—the difference between the due date and current date will tell you how many days have passed since that invoice was due. 

Filter and categorize invoices by aging

Once you’ve calculated the number of days past due for unpaid invoices, you can begin the nitty-gritty work of filtering and categorizing them into aging buckets. You can do this manually or with a platform like Maxio. You can automatically sort these invoices based on your predefined criteria.

That being said, some of the common aging categories are current, 1-30 days past due, 31-60 days past due, 61-90 days past due, and 90+ days past due. 

Once you’ve sorted your unpaid invoices into these aging categories, you can easily see the distribution of those that are past due. This will make it easier to prioritize your dunning process and reveal any collection risks and past-due trends you may need to address.

Create an aging schedule

Alright, time for the final step! Once everything is organized properly, you’ll want to create an aging schedule that summarizes your categorized invoice data. 

As previously mentioned, your aging schedule should have columns for each aging category: current, 1-30 days, 31-60 days, and 90+ days (these are the most common categories). Adding up the amounts across these aging categories for each customer will give you visibility into who has significant outstanding invoices and where you should focus your dunning and collection efforts.

Now, what if you don’t have the ability to create an accurate aging schedule? For example, if your company is experiencing rapid growth and your accounting department can’t handle the growing number of invoices you send each month, you may need some dedicated tools to help.

Rather than managing everything in a spreadsheet, you could use Maxio’s Accounts Receivable report to track your customers’ outstanding balances and credit balances. This report breaks down outstanding balances into invoiced amounts, payments, and refunds. Similarly, credit balances break down into prepayment balances and unapplied credits. 

Or, if you still prefer a spreadsheet, the CSV export allows you to see all of these elements and their corresponding details, including customer information, transaction dates, days outstanding, and days overdue.

How to use your AR aging report

Creating your AR aging report is only 50% of the work needed to get a better hold on your company’s cash flow. Once that’s done, you’ll need to start extracting the data inside to avoid unwanted revenue leakage. Here’s how you can use your new AR aging report to do just that.

Determine your average collection period

One way to use your AR aging report is to calculate metrics like your average collection period—this tells you the average length of time it takes to collect payment from your customers. 

To determine this number, look at the percentage of invoices in each aging bucket on your report. For example, if you have 40% in current, 30% in 30 days, 20% in 60 days, and 10% past 90 days, your average collection period will be roughly 51 days. Tracking this metric over time with each AR aging report allows you to spot trends and see if your collection period is improving or worsening.

Manage and prevent cash flow problems

Once you have a solid grasp on your average collection period, you can use the AR aging report to help avoid potential cash flow issues. Look for customers with large invoice amounts in the 60+ day aging buckets, as they’ll signal possible problems collecting. Then, reach out to those customers immediately to expedite the payment and collections process. 

You can also use the receivables report to have strategic conversations with your customers about improving their current deal terms or providing discounts when they make early payments. Ultimately, being proactive is the name of the game, and regularly monitoring your receivables aging will allow you to spot potential problems and adjust your collection practices as needed.

Estimate bad debt & allowances

The AR aging report can also inform how much you need to set aside for bad debt allowances. 

For instance, unpaid invoices after 90 days or more may need to be written off if the customer’s financial health is declining. You can also review accounts with substantial balances in the 120+ day aging periods, as these will represent the highest potential risk of nonpayment. 

While you continue collection efforts, you should note these doubtful accounts. The total value of these potentially uncollectible aged invoices should guide how much you provision for bad debt expenses and allowances. Regularly updating these estimates based on your receivables aging ensures your financial reporting reflects those collectability risks.

Inform changes to your credit policies

Last but not least, the patterns you spot in your AR aging report should drive updates to your credit policies. If certain customers continually stretch payments past due dates, it may be time to shorten their payment terms or require small payment deposits in advance.

As another consequence, high late payment balances could also warrant interest charges on overdue invoices. But you don’t need to limit yourself to penalizing customers for late or missed payments. You can also offer early payment discounts to incentivize faster payments and improve your monthly cash flow. 

If many customers pay around the same delayed timeframe, what this really signals is that your standard credit terms need reevaluation. Let your receivables’ aging shape the evolution of your credit policies over time to protect profitability as market conditions and customer behaviors change.

How to improve accounts receivable aging

Ultimately, the best way to reduce the aging of your company’s accounts receivable is through diligent collection and follow-up efforts. 

Automating dunning—communicating with clients with outstanding payments—can streamline these collection efforts. This communication can take many forms, including emails, in-app notifications, or automated phone calls through your accounting software.

While automated dunning is the first and most effective means of improving your AR aging, it’s not the only strategy. Implementing automation and accounting software can help maintain healthy cash flow by keeping up with accounts receivable aging. Check out Maxio’s AR Management Playbook to learn more ways to reduce AR aging and increase your cash flow through additional automation and streamlined collection efforts.

Aging AR report FAQs

What is a good AR aging percentage?

There is no single ideal aging percentage, as it depends on factors like your industry and credit policies. However, a good goal is having 70-80% of invoices within 30 days to maintain a healthy cash flow. Anything over 10-15% past 60 days warrants reviewing credit policies and follow-up on customer payment trends. Compare your metrics to industry benchmarks and watch for increases in older aging buckets, which signal issues to address through payment automation or collection process improvements.

What are the two types of aging reports?

The two main types of aging reports are accounts receivable (AR) aging and accounts payable aging. AR aging reports focus on customer invoices and analyze the length of time customers take to pay bills. This helps inform the collection process. Accounts payable aging reports do the same analysis for a company’s outgoing payments to suppliers. AP aging shows how promptly your company pays its bills. Both reports provide visibility into the timeliness of payments from customers or to suppliers.

What are the aging schedule categories?

A typical aging schedule has columns categorizing invoices by the length of time they are past due. Common categories are current, 1-30 days, 31-60 days, 61-90 days, and over 90 days. The aging intervals help identify issues with cash flow, credit policies, or collections. For accounts receivable aging, older buckets require priority follow-up. For accounts payable aging, longer intervals could mean taking advantage of early payment discounts. The standard schedule categories provide consistency in evaluating the timeliness of payments and receivables.

Is accounts receivable aging required by GAAP?

The Generally Accepted Accounting Principles (GAAP) include procedures necessary for estimating, reporting, and eventually writing off bad debts in a company’s financial statements.

Accounts receivable are listed on the balance sheet as an asset, but your company will eventually be required to estimate how much AR it believes will result in bad debt, and account for it as an allowance for doubtful accounts. The AR aging is the tool you’ll most likely turn to when estimating how much bad debt your company may incur.

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The QuickBooks SaaS Story: Can You Relate?

You’ve been there, right? Your QuickBooks instance was doing just fine in your company’s infancy. But now you’ve got hundreds of customers, and the FinOps debt is piling up.

While QuickBooks was initially a great option for your business, you now need to support more complex financial operations and reporting functions. QuickBooks wasn’t built for B2B SaaS or subscription-based businesses, so finance teams create complicated workarounds to make it viable. At some point, your team has to admit it’s just not a good option and begin looking at an ERP, which is a necessary move. That process often looks something like this:

We know exactly how disruptive moving to an ERP can be for a SaaS business. While it may be the best next step at some point, that doesn’t make it the best next step today.

In this post, we’ll help you understand if now is really the best time for you to transition to an ERP, and if it’s not, how Maxio can help you extend the life of your QuickBooks account instead.

5 Signs You’re Outgrowing QuickBooks

Unfortunately, there’s no silver bullet for knowing exactly when to call it quits with QuickBooks. Some might say it’s after you reach a certain ARR or employee count threshold. But in reality, the life of QuickBooks has less to do with how much ARR you’re managing and more to do with how sophisticated your business operations are. 

For example, QuickBooks wasn’t built to manage subscription revenue and recurring billing, especially if you have sales-negotiated contracts. It also doesn’t provide all the essential SaaS metrics and analytics necessary to manage, grow, and retain customers or connect with customer relationship management (CRM) systems. All of these challenges add up to make life pretty difficult in the back office. 

While there’s not a single moment you can point to, here are a few signs that you may be reaching the end of your QuickBooks lifecycle.

Your board is pressuring you to switch to a subscription model.


Once your company acquires enough customers to prove product-market fit, your board starts to pressure you to adopt a subscription model. Subscriptions mean recurring revenue streams for the business. This is good for you and good for the board, but it’s going to be a nightmare for invoicing in QuickBooks. 

QuickBooks wasn’t built for subscription businesses. “Recurring transactions” is the closest thing it has to a recurring billing function, but that’s like using a band-aid when you need stitches. 

To fill in the gaps, you rely on a spreadsheet for invoice scheduling and visibility into cash flow. However, invoicing is often missed, late, or incorrect. Additionally, late invoices tend to negatively impact cash flow.


Maxio simplifies your recurring billing so invoices are fully managed and scheduled when a contract is won. This ensures invoices go out on time and provides you with the visibility you need into your business’s health. 

With Maxio, you can: 

  • Process orders 
  • Manage renewals and invoices 
  • Manage upgrades, add-ons, and extensions 
  • Create custom invoice themes 
  • Include subscription dates in line-item descriptions 
  • Calculate sales tax 

With our complete dunning and collections function, you can also reduce Days Sales Outstanding (DSO) to maximize cash flow.

Investors are asking for metrics you can’t produce.


You won’t find subscription metrics in QuickBooks. Without the ability to dig into MRR, ARR, churn and retention (logo and dollar), and customer lifetime value (CLV) within your billing/invoicing engine, SaaS businesses must use spreadsheets to compensate again. 

While QuickBooks does provide basic general ledger functionality, that alone isn’t enough for a SaaS business. Some businesses will try to force a CRM like Salesforce to provide SaaS metrics like MRR or ARR, but these quickly get out of sync with numbers tracked by the finance team. 

It’s one thing to go back and forth internally over how you arrived at a certain number. It’s another thing entirely to have the same discussion in front of potential investors or, worse, have a potential investor call out an inconsistency. Shaky SaaS metrics erode investor trust and call into question the integrity of your financial operations. If you have this problem, it’s not a matter of if but when you need to level up from operating in just QuickBooks alone.


The Maxio analytics engine is the most optimized subscription analytics engine in the market, delivering accurate and real-time insight into all of your key SaaS metrics, including MRR, ARR, dollar churn and retention, logo churn and retention, subscription momentum, cohorts, CLV, and more.

Because these metrics are built from the same financial transactions that generate your GAAP revenue and invoicing, they’re the most accurate subscription analytics you can get.

You’ve started color-coding your spreadsheets.


You need contracts, invoices, and revenue recognition schedules to produce GAAP-compliant revenue reports and correct deferred revenue. But QuickBooks wasn’t built to handle recurring invoicing (at least not well). 

As a workaround, you’re likely augmenting the work in Excel. However, as you acquire more customers and introduce more complicated sales-negotiated contracts, the spreadsheet starts to take on a life of its own. You’re left with a color-coded mess filled with complex formulas and error messages.


Maxio manages your revenue and invoicing schedules, contracts, and transactions. It also reports the revenue and deferred revenue you need to stay GAAP compliant. Tightly integrated with QuickBooks, Maxio records and reports on all key revenue numbers, so you don’t waste time and energy wrangling with spreadsheets or worrying about data inaccuracies. Built-in revenue integrity checks ensure you won’t overreport or underreport. You’ll know immediately if numbers are out of balance.

Finance, sales, and customer success data are scattered across systems.


QuickBooks doesn’t integrate well with Salesforce and other CRMs if at all, which forces your team to manage customers and orders in a separate system that isn’t connected to your financial systems. That means sales teams who work exclusively in a CRM will see ARR, MRR, churn, retention, and other metrics that don’t align with the accurate picture produced by the finance team. 

This causes you to spend too much time and energy trying to get your team on the same page with a shared understanding of performance against your key business metrics.


Maxio bridges the gaps between finance, sales, and customer success teams with a single source of truth. This is critical for upgrades and expansion opportunities, renewals, ongoing account management, and updating sales teams on payment and invoice status for commission insights. Our direct integrations with CRMs such as Salesforce, HubSpot, and Pipedrive close the gap between sales, finance, and customer success teams by providing a standard view of each customer’s orders, contracts, transactions, invoices, payments, and renewals. 

With Maxio, you can close an opportunity in your CRM and book it in Maxio with complete revenue schedules, analytics data, and invoicing. In seconds, you can fully automate the process or insert a finance checkpoint to approve orders, from closed business to emailed invoices.

You’re overly protective of your spreadsheet.


There are many things to take obsessive ownership of in a growing SaaS business: company culture, the go-to-market strategy, and even coffee. But only desperation and nightmares of broken formulas can drive you to slap the hand of anyone who dares touch your sacred spreadsheet. You know your energy is better spent elsewhere, but the headache of possibly breaking your spreadsheet has caused you to impose maximum-security permissions. 

With all these disconnected, moving parts, it’s easy to see how and why QuickBooks and spreadsheets get out of sync. When this happens, it’s often a “silent failure.” Silent failures are the scourge of finance teams because they often go undetected. When finally detected, they cost hours to track down, diagnose the root cause, and fix. Over a year, this adds up to a tremendous amount of wasted time and money. 

When uncovered during an audit or due diligence, your credibility can be damaged; worse, you may see adjustments to valuations and deal terms.


Maxio performs constant data checks to minimize risk and ensure: 

Contract Value = Revenues Scheduled = Invoices Scheduled 

These checks are in place to help you recognize all the revenue you’re entitled to recognize and invoice for all of the contract elements you are entitled to invoice. You receive an immediate alert if any of these values fall out of balance. 

Moving from manual processes to automation with Maxio means you won’t miss renewals/invoices or incorrectly recognize revenue, which could jeopardize your enterprise value.

Practical Reasons to Extend the Life of QuickBooks

With all these headaches, why do we suggest implementing a financial operations tool rather than moving to an ERP like Intacct or NetSuite? It’s not just because we’re big fans of Maxio. (Although, there is that.) There are many practical reasons to avoid adopting an ERP too early in your growth cycle.

It’s expensive.

The license fees for ERP solutions are costly and typically require a multi-year commitment. It wouldn’t be outlandish to estimate that a large ERP, like Intacct or Netsuite, will cost you upwards of $100,000 annually. If you can delay the adoption of an ERP for just 3 years, that’s $300,000 in cost savings.

There’s a lengthy implementation time.

Depending on your stage of growth, implementing an ERP can be time consuming, typically taking 4 – 12 months. It is often necessary to work with one of their third-party professional services partners.

It’s disruptive.

Implementing an ERP successfully requires a dedicated full-time employee to oversee the process and another to maintain day-to-day operations. However, for growing B2B SaaS businesses, resources are often prioritized for engineering, sales, and marketing over finance and administration. It’s unlikely your finance team has the extra capacity to manage the business and make all the necessary business process and configuration decisions in a timely manner.

Why Not Extend the Life of QuickBooks by Supplementing with Spreadsheets?

There are several challenges with managing your subscription SaaS business with QuickBooks. 

One challenge you’ll encounter is problems invoicing for subscriptions in QuickBooks. While QuickBooks has a recurring billing function, it can’t handle recurring invoices with variable amounts, a cornerstone of subscription SaaS businesses. Without managing this directly in QuickBooks, you’ll have to create a separate tab in your spreadsheet for invoicing schedules. 

If you have a complicated invoicing schedule, you’ll have to set calendar reminders so you don’t forget to send out invoices. If you miss one and forget to send an invoice, you’ll effectively “lose” ARR due to a simple, clerical error. 

Your system will be highly susceptible to human error once you augment your work in QuickBooks with spreadsheets. Because you’re manually completing journal entries in QuickBooks from rev rec schedules in your spreadsheet, a simple contract change can wreak serious havoc downstream when it comes time to close your books. 

Finally, you’ll still be accountable for producing SaaS metrics, even if those aren’t readily available in QuickBooks. Perhaps you can create yet another tab in your spreadsheet to calculate essential metrics like ARR, CAC, and CLV. 

The problem is that formulas aren’t always applied consistently. Since there’s no governing body for SaaS metrics like there is for GAAP financials, many of these terms are up for interpretation. 

As you can see, supplementing QuickBooks with spreadsheets alone is a largely error-prone process that ultimately opens you up to more risk than it is worth. It’s more of a stop-gap than anything; stop-gaps aren’t solutions.

Extend the Life of QuickBooks with a Subscription Management Platform

With a subscription management solution like Maxio, you can scale your financial operations significantly without the expense of an ERP or the headache of spreadsheets.

According to Jon Cochrane, VP of Strategy at Maxio, “If you want to extend the life of QuickBooks, you need an automated way to bill, collect, and report revenue.” That’s precisely what Maxio is. Maxio is a billing and financial operations platform designed to sit between your CRM and general ledger to streamline financial operations and reporting.”

Maxio’s bi-directional QuickBooks integration eliminates manually updating QuickBooks with Maxio transaction data and mitigates the risk of investors spotting errors in your spreadsheets. Maxio generates rev rec and invoicing schedules from transaction data pulled directly from your CRM. 

You can also automate invoicing directly from Maxio and even set specific parameters for email cadences for A/R management. In terms of reporting, Maxio’ SaaS metric reports use your real transaction data to generate metrics, standardizing the application of formulas and removing speculation about where specific numbers came from. 

Finally, you never have to worry about human-sync errors between your spreadsheets and QuickBooks. Maxio continually scans for discrepancies in your numbers and alerts you when out-of-balance accounts require your attention. 

All in all, adding a billing and financial operations solution to QuickBooks is a fraction of the cost of transitioning to an ERP, and it takes mere weeks to implement rather than months. Moreover, because Maxio integrates with ERPs and smaller ledgers like QuickBooks, you can continue to reap the benefits of Maxio even after you have outgrown QuickBooks once and for all.

When is it Time to Switch to an ERP?

Even though it may not be as soon as you think, there will come a time when you do need to switch to an ERP. More often than not, this has less to do with the size of your company and more to do with the sophistication of your business model. 

One of the most common reasons companies invest in an ERP is the decision to go international and operate that leg of the business as a subsidiary. Once you start introducing multiple entities, it can be challenging to keep everything straight without a more complex system. 

The other primary reason to switch to an ERP is in the event of a merger or acquisition. With multiple companies’ financials being consolidated, the ability to manage more complex data sets becomes crucial. 

These are not the only reasons to switch to an ERP, but they are by far the most common ones. Contrary to popular belief, the main takeaway is that ARR and headcount are not the primary catalysts for switching to an ERP. 

The nice thing about a billing and financial operations solution like Maxio is that it scales with you as you transition to an ERP. Maxio’ integrations with Intacct and NetSuite marries the best of an ERP to the flexibility and SaaS focus of Maxio.

For practical insights and strategies on ERP implementation, check out our blog post on How We Implemented NetSuite in 8 Weeks. This comprehensive case study highlights Maxio’s successful transition and offers valuable tips for your own ERP journey.

Closing Thoughts and Key Takeaways

While switching to an ERP sooner rather than later may be tempting, there’s a substantial financial upside to putting off the transition. Delaying the switch for even a couple of years could mean the difference in hundreds of thousands in cost savings. 

While managing this delay by augmenting key financial operations in spreadsheets has been the norm for most SaaS businesses, this is actually not sustainable due to its high susceptibility to human error. 

A billing and financial operations platform like Maxio can effectively extend the life of QuickBooks for your team without the headache of spreadsheets. Interested in learning more about how Maxio can help you extend the life of QuickBooks at your company? Talk to an expert today, or sign up for a free demo to learn how Maxio can help your business grow.

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Revenue leakage is a silent threat that can significantly impact an organization’s financial health, eroding profit margins and stunting growth. It is the death by a thousand papercuts for an organization. In the more than 20 years that I’ve spent in finance, I’ve seen how imperative addressing revenue leakage is for maintaining financial stability. Understanding revenue leakage and implementing measures to prevent it is crucial for a robust and efficient financial operation. 

This post explores the causes of revenue leakage, from human error to inefficiencies in RevOps, and presents practical solutions to stop it in its tracks, ensuring your organization remains financially healthy and competitive.

What is revenue leakage?

Revenue leakage refers to the unnoticed loss of revenue within an organization due to inefficiencies, errors, or mismanagement in financial processes. It is crucial to distinguish revenue leakage from churn however. Churn represents lost customers while revenue leakage pertains to lost revenue that could have been retained or earned. This phenomenon can significantly erode profit margins and hinder potential revenue growth, making it a critical issue for any business to address. Revenue leakage often results from lost revenue, inefficiencies, and unchecked manual processes, affecting renewals and causing financial loss.

In the competitive world of B2B SaaS, it’s essential to recognize how revenue leakage can impact your business. When revenue that should be earned is lost due to avoidable factors, it  impacts future growth. This revenue loss could have been invested back into the business for product development, marketing, or team expansion. 

The key to combating revenue leakage is understanding its causes and implementing prevention strategies.

What are the causes of revenue leakage?

Several factors contribute to revenue leakage, each posing unique challenges to an organization’s financial stability. Some of the primary causes include:

  • Human error: Simple data entry, billing, and invoicing mistakes can lead to significant revenue losses. These errors are often due to manual processes that are prone to inaccuracies. For example, a misentered invoice amount or an overlooked billing period can result in substantial revenue discrepancies over time. Additionally, relying on spreadsheets for financial data can be problematic, as maintaining their integrity is challenging and errors can easily propagate through various financial processes, leading to further revenue leakage. 
  • Invoicing and billing errors: Incorrect invoicing and billing can result in either underbilling or overbilling customers, leading to disputes and loss of trust, ultimately causing leaks. Ensuring accurate invoices reflect the correct amounts due is essential for maintaining healthy cash flow and customer relationships. 
  • Fraud: Internal and external fraudulent activities can siphon off substantial revenue, often going undetected for extended periods. This can include unauthorized discounts, falsified refunds, or other deceptive practices. 
  • Wrong pricing strategies: Ineffective pricing models and strategies can fail to capture the full value of products or services, leading to lost revenue opportunities. Misaligned pricing can result in undercharging or overcharging customers, hurting both revenue and customer relationships. It’s also important to be flexible in doing business the way customers want or need. 
  • Absence of collection solutions: The lack of dunning and collection tools to enforce contractual payment obligations and bill late fees can further exacerbate finances. Regularly review your pricing models to ensure they align with your business objectives and market conditions.
  • Incomplete data/reporting: Inaccurate or incomplete data reporting can lead to misinformed decisions and financial losses. These issues can undermine the reliability of financial reports and decision-making processes, jeopardizing the organization’s revenue streams. Understanding how to look at your data and pricing from a strategic perspective can provide valuable insights into optimizing revenue.
  • Lack of standardized processes: Inconsistent processes across the organization can lead to inefficiencies and missed revenue opportunities. Variability in procedures can cause confusion, errors, and delays, ultimately affecting the bottom line. Read our guide on billing management to learn more about managing your billing processes effectively.

These issues can manifest in various forms of revenue leakage, affecting billable hours, customer success, and overall customer experience. Consulting firms often find these problems in the first place during audits, where real-time functionality and data entry discrepancies in CRM systems are prevalent.

How to prevent revenue leakage

Preventing revenue leakage involves a strategic approach that includes identifying sources of leakage, optimizing processes, leveraging technology, and managing contracts effectively. By taking these steps, businesses can stop revenue leakage and protect their financial health.

1. Identify sources of revenue leakage

The first step in preventing revenue leakage is reviewing business and financial operations meticulously to pinpoint areas where revenue might be leaking. This involves scrutinizing financial reports, customer data, billing systems, and compliance processes. Consistently evaluating these aspects and keeping current on SaaS billing best practices helps in identifying inconsistencies and taking corrective actions.

Key areas to review for leakage include:

  • Billing systems: Ensure your billing systems are accurate and efficient. Regular audits of billing systems can identify discrepancies and ensure that all billed amounts are correct.
  • Customer data: Maintain up-to-date and accurate customer data to prevent billing errors. Accurate customer data ensures that invoices are sent to the correct recipients and reflect the correct amounts due.
  • Discrepancies in sales team metrics: Monitor sales team performance metrics to identify and address any inconsistencies. Regular reviews of sales metrics can highlight areas where sales processes can be improved to prevent revenue leakage.
  • Forecasting and underbilling: Regularly review forecasting models and ensure accurate billing practices. Accurate forecasting helps predict future revenue and identify potential problem areas.

A practical method to validate and identify sources of leakage is to “staple yourself to an order.” By following an order from Sales to Operations to Accounting and ultimately to cash receipt, you can better identify misalignments within your organization and areas for process improvement. This approach may also reveal professional services that are rendered but never billed to a customer.

2. Create and optimize SOPs

Documented Standard Operating Procedures (SOPs) are vital in preventing revenue leakage. They help regulate processes, promote clarity, and keep everyone on the same page, reducing inconsistencies and aiding in decision-making. Developing and optimizing SOPs involves analyzing current processes, identifying gaps, and taking detailed notes to ensure every step is covered. Organizing the chaos is key to knowing what levers to push or pull to fine-tune your revenue engine.

Benefits of SOPs include:

  • Standardization: Ensure uniformity in processes across the organization. This reduces the chances of errors and ensures that all team members are following the same procedures.
  • Transparency: Make processes clear and understandable for all involved. Transparent processes also help in identifying areas of improvement.
  • Consistency: Reduce errors and inconsistencies in operations. Consistent processes reinforce reliable outcomes.
  • Informed decision making: Establish that decisions are based on accurate and comprehensive information. Well-documented SOPs provide clear guidelines, ensuring that all actions align with your organization’s goals.

Integrating project management tools in different systems can further optimize these processes, creating dependencies that streamline workflows and strengthen the bottom line.

3. Leverage software automation tools

Leveraging automation tools can significantly reduce the risk of revenue leakage by handling complex and repetitive tasks more efficiently. Automation in revenue management provides several benefits, including:

  • Contract lifecycle management: By automating the management of contracts from initiation to renewal, you can reduce errors and ensure compliance. Automated alerts for renewals and compliance checks prevent contracts from slipping through the cracks, ensuring all obligations are met. Having a contract database with key attributes to score the quality and health of a contract is a foundational element to enhance revenue generation. Scoring based on key elements such as cancellation for convenience, multi-year agreements, and contractual price increases allows management to incrementally improve the value of the contracted install base.
  • Recurring billing: Automating billing cycles ensures timely and accurate invoicing. This reduces the chances of missed or incorrect invoices, capturing revenue accurately and on time. Streamlined workflows deliver a clean billing process.
  • Subscription management: Efficiently managing subscriptions reduces the chances of missed renewals and ensures customers are billed correctly. This seamless handling helps maintain a consistent revenue stream.
  • Revenue recognition: Automating revenue recognition processes ensures compliance with accounting standards and overall accuracy. Using revenue recognition software helps recognize revenue in the correct periods, reduce manual errors, and deliver accurate financial statements.
  • Revenue reporting: Automated revenue reporting systems provide real-time insights into revenue performance, aiding in the early detection of issues. Accurate and timely reports enable better decision-making and help identify revenue trends promptly. Having a process and automation that can look at the revenue/billing streams at the 30,000 foot level and identify trends or blips allows for the drilldown to specific customer and invoice line item detail, ensuring gross revenue leakage is identified and corrected.
  • Revenue projections: Automated tools use historical data and analytics to create accurate revenue forecasts. These reliable projections aid in strategic planning, helping set realistic revenue goals and plan for future growth.

Utilizing these tools helps optimize time tracking, streamline revenue management, and minimize the risk of revenue leakage. Integrations with different systems ensure that workflows are smooth and efficient. Automating these processes also reduces the reliance on manual spreadsheets, further reducing errors and improving efficiency.

4. Properly manage and execute contracts

Mismanagement of contracts can lead to significant revenue leakage. Proper renewal management and execution of contracts involve conducting thorough reviews, ensuring all terms are met, and keeping updated records. Implementing a robust contract management system helps prevent leaks by ensuring all terms are adhered to, renewals are timely, and any discrepancies are addressed promptly.

Effective contract management ensures that SaaS revenue leaks are minimized and team members are aligned on revenue generation strategies. Key aspects of proper contract management include:

  • Regular reviews: Regularly reviewing contracts to ensure compliance with terms and conditions. This includes checking for any discrepancies and addressing them promptly.
  • Compliance: Ensuring that all contract terms are adhered to and that any changes are documented and approved. Compliance checks help in ensuring that all contractual obligations are met.
  • Accurate records: Maintaining accurate records of all contracts, including renewals, amendments, and terminations. This assists in tracking contract performance as well as identifying any areas of revenue leakage.

Managing contracts effectively ensures revenue opportunities are maximized and potential revenue leakage is minimized. It also helps in building strong relationships with customers and partners by ensuring that all terms and conditions are met.

Capping revenue leaks strengthens your bottom line

People, processes, and systems working together are the key ingredients to revenue leakage prevention. By identifying and addressing the causes of revenue leakage, optimizing processes through SOPs, leveraging automation tools, and managing contracts effectively, businesses can significantly reduce the risk of revenue loss. Maxio offers comprehensive solutions designed to help B2B SaaS companies tackle revenue leakage head-on, providing advanced billing, subscription management, and more.

In conclusion, revenue leakage is a critical issue that can significantly impact an organization’s financial health. Understanding its causes and implementing effective strategies to stop revenue leakage can help businesses optimize their operations, improve profitability, and achieve sustainable growth. Maxio provides the tools and expertise needed to address revenue leakage and ensure financial stability for B2B SaaS companies.

Learn how Maxio can help your business stop revenue leakage and optimize workflows by exploring our advanced billing and subscription management solutions. Additionally, for a comprehensive guide on managing renewals effectively, visit our page on renewal management.

By taking proactive steps to address revenue leakage, your organization can protect its financial health, maintain customer trust, and support sustainable growth. Don’t let unnoticed revenue leaks undermine your success—start implementing these strategies today and see the positive impact on your bottom line.

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Revenue Recognition Policy Template

Auditors require lots of documentation to ensure accuracy. Having a solid revenue recognition policy in place is the first step toward ensuring compliance.

It’s not often accounting folks get to wear a cape and be the hero of the story. There just aren’t many fairy tales where a Big 4 CPA turns business operator, revolutionizes the collection process, and gets a day named after them in their hometown. 

But make no mistake, if you see the cash conversion cycle in action – I mean truly RIPPING – it’s nothing short of magic.

Maybe I shouldn’t say “see.” The CCC is something you have to “feel” to truly understand. I experienced its wonders first hand last year. I’m the CFO at a company where we got our Days Sales Outstanding (DSO) down from 55 days to 37 days in the course of a year. That’s an 18 day improvement, or 33%.

And through some shrewd negotiating, we got our Days Payable Outstanding (DPO) up from 35 days to 47

And as a company that doesn’t produce physical widgets, we had no inventory. Our Cash Conversion Cycle was now negative 10 days.

From Tactical Changes to Real Results

What’s the net of it all? As a cash-burning company, this allowed us to hire three more people over the course of 12 months. Those three people happened to be developers, who helped us get new products to market faster, and increase revenues. 

OK, so let’s get tactical. How did we do it?

1. Adjusting Customer Agreements

First, we simply changed our “off the shelf” customer agreement. Every company has one. And it probably hasn’t been updated for… well, a long time.

Instead of 45 days, anyone new was handed a template that had 30-day payment terms penciled in. If they accepted the terms as they were, boom. We were already in the money by 15 days. 

We had long accepted that 45 days was industry standard. It sounds dumb – but we let inertia hold us back. We finally said, damn the torpedoes. Let’s just try it and see who pushes back.

The result: Only 5 out of 20 new customers said something.

The lesson: Change it and see who complains. It’s never as loud as you think. 

2. Encouraging ACH Payments

Next, we tried to convert customers who sent us physical checks each month to put down the pen and start paying us online via ACH.

This was a pain, I’ll admit it. It involved conversing directly with the payables teams of about 50 customers via email and phone. Just finding the right person was often difficult, especially when you are dealing with multinationals who have massive billing departments. I’d say half we sorted without picking up the phone, and the other half we had to have (SCARY) a real-life conversation. 

What I discovered was the person on the other side either kicked it up to their boss, causing a bit more back and forth, or really didn’t care to make a fuss and agreed. We did have to send over a few W-9 forms again (they seemingly always get lost. If you know, you know.) and sign a few papers. But hey, it was well worth it.

After that, we took inventory (no pun intended) of who was left paying us with paper checks (dinosaurs!). In the background, we set up a lockbox run by our bank in a central location in the US. This is a small thing, but we are located in MA and most of our customers were sending checks from their HQ in the Midwest or South. We were able to pick a lockbox closer to them to cut down on mailing “float” by a day.

We notified them that we had set up a lockbox with our bank, and provided them a new address to send the checks to going forward. This also meant we no longer had to go to reception at our shared office space each week, fish through the myriad of envelopes and junk mail, open the letters, and deposit any checks via mobile. This part of the process was a self-inflicted wound we were determined to rectify. 

The days of losing checks were over! I hate to admit it but it does happen. At the time we were receiving more than 50 checks a month, which was a headache to keep track of and scan. It gave back at least half a day per week to a member of our accounting team. 

As luck (or math) would have it, the interest we made on the account from deposits easily made up for the fees associated with the lockbox. Checks were getting deposited on average four days earlier, and cleared our bank account about a day faster than mobile, since it was the bank doing it on our behalf. 

So that’s how we systematically changed our collections.

The result: We dropped 18 days like a bad habit. 

The lesson: Never underestimate the power of small operation changes.

But we didn’t stop there. 

3. Renegotiating Payables for Better Terms

The next element of the cash conversion cycle we attacked was payables. The majority was tied up in software we paid other tech companies for, which we used to either build our product, market our product, or communicate with other employees internally. The good thing about software is that if you are on annual contracts, each year you have a built in chance to “play ball” and renegotiate terms. So upon renewal, I started asking for quarterly payments on every software contract I signed. Most of the reps I spoke to had a much easier time pulling this lever internally than price. We went from having 80% of our contracts billed annually and upfront, to more than half being quarterly… a few even in arrears!

The biggest contract I renegotiated was Salesforce, moving a massive up front annual payment to quarterly payments. This alone was a game changer. A big whack of cash no longer vanished from our account each year. It went in drips.

And remember, interest rates were also rising at the time. So the cash I kept on hand longer collected interest longer which helped pay off the lockbox fees and more. The interest that year helped pay for 4 more developer salaries. But that’s for another day… 

The result: We improved our DPO by 17 days by asking for quarterly payments at renewal.

The lesson: Payment terms are an easier lever to pull than pricing asks in a negotiation.

A Note on Inventory Management

There’s a conspicuous part missing from my CCC story: inventory. You can’t touch the products that my company builds – they’re bits, not bites (or whatever the saying is). But don’t forget that for the majority of companies in the world, managing inventory is a massive headache.

Much like the saying “planes don’t make money on the ground,” you could say that “clothes in a warehouse” or “car parts on a shelf” don’t make money either. I’ve taken some snapshots below of auto and apparel industry cash conversion cycles to give you a peak into who’s winning their CCC battle. The amount of cash tied up in inventory can seriously constrain growth.

I’ve anecdotally heard that some of the major auto suppliers don’t pay their suppliers until stuff has actually been purchased off the shelf. That’s the ultimate test of power in the relationship. 

The result: Growth can actually kill a company with inventory management problems.

The lesson: Inventory management terms are a true test of power in a vendor relationship.

Trust the Process

Overhauling my company’s cash conversion cycle was a journey – not a one time “event.” It was more tactics than strategy. And it wasn’t without its frustrations. For example, some suppliers continued sending paper checks to our old address for five more months. But if you trust the process and remain consistent in your communications and negotiations, it proves out in the numbers. 

My favorite email I sent all year was one to my CEO, congratulating my controller on this overhaul and explaining how it freed up resources for growth. And he agreed – our accounting team was nothing short of heroes.

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My stance on the matter of cash vs accrual accounting has evolved. I used to believe cash accounting was sufficient for SaaS businesses with ARR below $3 million. However, I’ve realized this is not the case, and cash accounting for revenue is problematic for almost all SaaS companies.

First, let me acknowledge that cash is what makes a company run. You don’t pay your vendors or employees in revenue, so it’s essential to know your cash flows and project your cash position. That said, cash is noisy and not the best way to build your income statement or track your progress.

Unless your company bills and collects cash monthly, using cash-based revenue recognition generates the following problems.

  1. ARR must be tracked separately and can’t be tied explicitly to the income statement. MRR times 12 does not equal ARR when using cash accounting. SaaS Metrics using ARR or MRR that do not tie back to the financials are more subject to error, take additional time to calculate, and are less trusted by investors or acquirers.
  1. All CAC efficiency metrics rely upon ARR data, so they also need to be calculated on a one-off basis and are not tied to the financial statements. Thus, these metrics suffer from all the issues listed above.
  1. Retention is more challenging to measure accurately with cash accounting. When comparing current to prior year revenue from a cohort of customers (static pool calculation), any billing terms or timing changes will create false churn. In addition, retention numbers will be much more variable month-to-month.
  1. Finally, the business’s growth trajectory is simply harder to gauge with cash accounting. Seasonality in bookings, lumpy bookings, changes in payment terms, and other factors create noise in cash-based revenue, which obscures underlying trends.

When I was underwriting credit decisions at SaaS Capital, I dealt with a wide variety of financial statements across thousands of prospects. Companies using cash accounting always took more time to understand and, almost by definition, had a weaker grasp of their financial performance than those companies who had adopted accrual accounting.

I’m less concerned about the expense side of the equation. Cash accounting for expenses does add noise to profitability and CAC metrics, but those can usually be averaged out. It’s the revenue side that gets distorted.

I’m not an expert, but if you don’t have many customers, GAAP revenue recognition can be done on a spreadsheet. As a business scales, that spreadsheet can get pretty complex and error-prone, and a more robust solution is required.

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Business planning at B2B SaaS companies often feels like more art than science. We use models that are built on assumptions on top of other assumptions. And we never really know if the assumptions are right. This is where having reliable data makes all the difference. Having the ability to triangulate your results against a peer group allows you to understand where you are leading or lagging the market, and it directly impacts your ability to do more effective AND efficient business planning. 

This year’s B2B SaaS Performance Metrics Benchmarks Report, compiled by Ray Rike and the Benchmarkit team, is an indispensable resource for any B2B SaaS Executive Team. Drawing insights from over 900 companies, it offers a comprehensive view of industry trends and metrics.

This report has been instrumental in guiding our strategic choices at Maxio and helping us gauge our performance each year. The 2024 edition continues this tradition, providing critical insights that reflect the industry’s challenges and opportunities. 

As my executive team and I processed the different implications, we thought there were some specific insights with regard to how to think about driving growth and allocating resources that we wanted to share with the broader SaaS community.  

Evolving Growth Strategies

Over the past year, the focus has shifted from “growth at all costs” to “efficient growth” and now to “lower growth with reduced efficiency.” This trend has been particularly challenging for companies backed by venture capital or private equity, leading to intense boardroom discussions about adapting to this new reality. Recent industry reports, such as Gartner’s 2023 Global Software Buying Trends and IDC’s Worldwide Website Software Forecast, highlight a slowdown in growth due to economic uncertainty and budget constraints, particularly in the cloud services sector. 

When we look at the Benchmarkit report, we see that the key growth efficiency metrics such as Blended CAC, New CAC, and CLTV/CAC are all going in the wrong direction.

Blended CAC Ratio Annual Revenue

As a metric, Blended CAC is valuable because it provides visibility to all “new” ARR (including new logo and expansion). In my experience, when most people talk about CAC, they use all of Sales and Marketing expenses against just the new logo ARR created during a specific time period. This is problematic because you are not allocating Sales and Marketing spend to your “customer marketing” efforts that help generate “expansion” ARR. This year’s Benchmarkit report shows that there are several “valleys of death” with regard to Blended CAC ratio. The segment of companies between $20-$100M tells the story of what I am hearing from many CEOs–they are trying to mine their customer base. This means focusing more sales and marketing dollars at the install base to drive growth. Two years ago, everyone thought this was the easier play: you have a contract in place, you have a relationship, and you have gotten through procurement. What this year’s report says is that it is getting more expensive to pursue this growth path. 

Dan Owens, our CFO, was struck by the latest trends in New Customer CAC, a subset of Blended CAC.  

The New Customer CAC Ratio is all about finding the efficient frontier sweet spot. The challenge is dialing in the Go-To-Market investment allocation. The latest trends show that companies are facing increasing headwinds as they focus on closing new business while their prospects are tightening their spending budgets. This ratio requires discipline and cross-functional cooperation to calculate correctly. Specifically, finance teams need to partner with their respective Sales and Marketing functions to understand and accurately capture what investments are dedicated to new versus existing customer base sales. It is also very important to understand the specific sales cycle to properly match S&M spend investment to the corresponding new business to calculate and properly interpret the ratio results. The current business environment requires proactive S&M spend allocation to allow for experimentation to achieve top-quartile results.

New Customer CAC Ratio FY

Obviously, growth comes not just from new logo sales, it also comes from install base activation. To that point, our VP of Sales, Will Ibsen noted: 

The new report from Benchmarkit revealed that while CLV/CAC ratios for most B2B SaaS companies have remained stagnant for the last two years, some companies are figuring it out with the top percentile boasting 6x ratios. 

For that cohort, this means that the revenue from your average customer is 6x higher than what it costs to acquire them. For the others, the cost to acquire customers isn’t getting any cheaper or easier.

So what is the 75th percentile up to? My guess is they are PLG.

CLTV to CAC Ratio FY

Amidst these challenges in customer acquisition, maintaining strong Gross Revenue Retention (GRR) has never been more critical. Eric Hansen, Head of Customer Success had this to say:

Gross Revenue Retention (GRR) is a key metric in understanding the health and satisfaction of your current customer base and how your existing solutions are working.  Depending on your product offerings, pricing, and changing market conditions, your ability to drive extra revenue on top of that or Net Revenue Retention (NRR) may vary. Still, the foundation of the health of your business will depend on your GRR.  GRR also becomes more important over time as the percentage of new revenue to existing revenue decreases in ratio for more mature businesses.  Often termed “the leaky bucket,” for large companies, the ability to keep a high GRR is an extremely important metric as it gets harder and harder to fill with new sales.  In this year’s benchmark, there are a couple of interesting trends, including the drop in the low end of GRR from 81% to 79% over the last year.  This indicates that companies with stronger product market fit may be able to retain their historical GRR rates. Still, companies at the bottom are having a harder time keeping customers or executing renewals at a discount in these times of tightening budgets.  Usage pricing models also show a lower GRR than subscription contracts, likely due to many subscription contracts being sold on annual or multi-year commitments, with Usage contracts often being month to month.  This might be a leading indicator for lower GRR rates in the coming months as longer-duration contracts come due. 

Gross Revenue Retention Rate FY

Strategic Resource Allocation

In response to the micro-recession in the B2B SaaS sector, many companies have reduced their Sales and Marketing expenditures. Despite declining growth rates, the increased cost of acquiring incremental growth underscores the need for strategic resource allocation.

While the report showed a decrease in sales and marketing expenses year-over-year, the median for G&A and R&D stayed relatively the same. Barrow Hamilton, Head of Product, commented:

30% is a typical level I see in the market for R&D Expense as a percentage of Revenue; you can see that in this benchmarking report. If the percentage is significantly higher, it should be allocated as such purposefully. For example, this percentage is typically higher for companies in the sub $5M revenue range as these companies ramp investment to capture market share once they’ve found product-market fit. The report validates this with a range of up to 105% for these companies and a median of R&D expenses approaching half of revenue.

R&D Expenses to Revenue - Annual Revenue

At the end of the day, benchmarks on S&M, G&A, and R&D aggregate a company’s spending across people, tech, partners, and programs. However, nearly 65-75% of spending for most B2B SaaS companies is associated with employee spend. In some ways this is our most strategic resource tradeoff. To that point, Chris Weber, COO, noted the trends associated with  ARR/employee:

This year’s report introduces ARR per Employee as a key metric, highlighting its rising importance as the industry focuses on efficient growth in a cautious capital environment. With many companies having reduced their teams over the last 18-24 months, it’ll be interesting to see if they can maintain these efficiencies and boost ARR growth or if they’ll start hiring again. The shift towards AI to enhance employee productivity makes this metric even more relevant. However, since this metric treats all employees the same, from entry-level to seasoned execs, I find ARR per Total Salaries and Benefits a more insightful internal measure for tracking efficiency.

ARR per Employee Ratio Annual Revenue

Despite the challenges around driving growth and making those tough resource investment tradeoffs, it is clear that most CEOs–especially those leading companies with more than $1M in ARR–are cautiously optimistic about higher growth in 2024. However, the reality of these plans is still uncertain, with many CEOs hoping for improved capital access that has yet to materialize.

Download the Full Report

The Benchmarkit team has once again delivered a report rich with actionable metrics. This report is designed to equip you with the insights needed not just to survive but to excel and prosper in today’s challenging environment. By leveraging this data, we can build strategies for success in 2024 and beyond.

Download the full 2024 B2B SaaS Performance Metrics Benchmarks Report here.

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“Measure what matters.” That’s one of our favorite sayings at Maxio.

Sure, your teams may say they care about their OKRs, KPIs, etc, but if you don’t have the right tools to track those metrics and report on them regularly, you have no way of knowing if your day-to-day work is contributing to those goals.

For starters, it’s incredibly difficult to gather real business insights when your data lives in disparate systems. Without visibility into key metrics like churn rate, customer lifetime value, and user retention, it’s impossible to understand what’s driving growth.

This is why tracking your team’s data on a centralized SaaS dashboard is so important. 

In this article, we’ll explore common challenges with gathering SaaS metrics and how purpose-built dashboards can help your teams provide real business impact. Let’s take a look.

What are SaaS dashboards?

A SaaS metrics dashboard is a visual display that centralizes subscription data and metrics for SaaS companies. Packaged in an easy-to-use interface, SaaS dashboards transform raw analytics into actionable business intelligence. 

Rather than digging through spreadsheets, your executives can use these dashboards to visualize key SaaS metrics on demand through interactive charts and graphs. Some common dashboards provide insights into metrics like customer acquisition, account expansion, churn risk, recurring revenue forecasts, sales performance, and more.

For example, Maxio’s Days Sales Outstanding (DSO) dashboard helps Finance teams calculate DSO on a monthly, quarterly, or annual basis to supplement the way they build their financial forecasts.

By consolidating all your SaaS data into a customized dashboard, your teams can get visibility into what’s really driving business growth. Whether it’s improving your net revenue retention rate or reducing subscriber churn, SaaS analytics dashboards help make progress more transparent so you can course correct based on real data (versus gut instinct).

Benefits of using SaaS dashboards: Better data, better decisions

SaaS companies that adopt data dashboards position themselves for smarter decision-making and streamlined operations. Plain and simple. Let’s explore some of the top reasons SaaS businesses should invest in analytics dashboards.

1. Centralized access to critical SaaS metrics

Rather than compiling readings from disparate sources, SaaS dashboards enable users to monitor their most important metrics from a unified analytics tool. This single source of truth helps growth companies make better business decisions as they navigate the SaaS maturity curve.

Important metrics like subscriber growth, churn rate, and recurring revenue get updated automatically instead of through manual data entry. Visualizations transform complex metrics into intuitive charts on role-based dashboards. Your executives can also use these dashboards to gain visibility into the health and trajectory of subscription sales and account expansion initiatives.

Centralized data access also surfaces unexpected or hidden correlations through cross-metric analysis. For example, linking support ticket volume to account churn may reveal opportunities to improve retention through superior customer service. Without integrating SaaS datasets, these types of actionable insights will just get lost in the gaps.

In short, having all the pieces of the subscription sales and account management puzzle in a centralized dashboard clarifies which knobs you should be turning to drive business growth.

2. Greater visibility into business performance

SaaS dashboards dismantle the departmental data silos that restrict leadership’s view into core operations. By consolidating analytics into interactive, visual reports, your teams will gain transparency into performance across the organization—not just what’s happening in their department.

Stakeholders ranging from the sales team to the C-suite can review insights into revenue growth, customer engagement, and account health on their own time. Not to mention the customized views that most dashboards are capable of producing that ensure each user sees the most relevant key performance indicators (KPIs) for their role.

For example, the sales dashboard tracks new customer acquisition rates alongside the net promoter score (NPS) from customer success. If NPS declines among recent cohorts, leadership can correlate sales practices to churn predictors and coach sales reps accordingly. Or, the finance dashboard reporting on profitability margins can help your sales team right-size pricing and identify expansion opportunities.

3. Deeper understanding of business needs

SaaS analytics dashboards deliver more than static snapshots of your subscription data—they also give teams a much deeper understanding of the overall health of a business.

Rather than deciphering abstract figures on a spreadsheet, stakeholders can generate custom dashboards showcasing the key performance indicators that are most relevant to them. Your team members can then use these interactive interfaces to take the SaaS metrics that are most relevant to their department and turn them into easy-to-understand visuals.

For example, an executive may notice churn creeping upward on their KPI dashboard. With just one click on that churn metric, they can filter the dashboard view to the customer segments that are driving churn.

The ability to drill down into your business’s most important metrics ultimately helps eliminate any gaps that may exist between your data and strategic decision-makers. And while you don’t have to be checking your metrics 24/7, SaaS companies that leverage these dashboards will always have a better pulse on subscription performance than their competitors.

4. More user-friendly than spreadsheets

While spreadsheets are fine for storing subscription data, SaaS dashboards ultimately transform your metrics into intuitive visualizations that your teams can easily refer back to. Charts, graphs, and gauges allow users across different skill levels to digest insights quicker as well.

Fortunately, it’s not too difficult to implement some simple dashboard design principles to make your dashboards more readable. And you don’t have to be an expert designer either. Many popular SaaS dashboard tools come pre-built with clean layouts, thoughtful color coding, and whitespace that helps users focus on what matters most.

On the other hand, spreadsheets often require manual number crunching and formula building to derive meaning. And once you’ve done all that, there’s no guarantee that they’ll be easy to read. Dashboards, meanwhile, take care of the heavy lifting behind the scenes so users can spend most of their time acting on insights instead of processing data and trying to build out reports.

What SaaS metrics and KPIs belong on your dashboard?

With endless data available, determining the most crucial SaaS KPIs to monitor can be challenging—but not if you have the right SaaS reporting tools. Once you’ve chosen an analytics platform to build your dashboard with, you just need to come up with a few key performance indicators (KPIs) that your team members can rally around.

Throughout this section, we’ll cover the essential SaaS subscription metrics across customer acquisition, account expansion, and retention that you should be tracking on your teams’ dashboards.

Here are the SaaS KPIs you should consider tracking:


Monthly recurring revenue (MRR) and annual recurring revenue (ARR) are crucial SaaS metrics that quantify predictable revenue streams. MRR allows companies to monitor subscription performance month-over-month. Meanwhile, ARR projects future revenue based on the current subscriber base over the next 12 months. Tracking MRR and ARR over time provides visibility into growth and retention trends. Both metrics spotlight the overall health of the recurring revenue engine that sustains SaaS businesses.

Customer acquisition cost (CAC)

Customer Acquisition Cost (CAC) measures the average cost to acquire a new paying customer. By factoring sales and marketing expenses required to generate new business against net new customers, CAC spotlights spending efficiency. Monitoring CAC ensures customer growth remains profitable over the long term. No revenue metric on a SaaS dashboard offers more useful insights than keeping tabs on CAC to optimize and forecast budget needs per company growth objectives.

Customer lifetime value (LTV)

Customer Lifetime Value (LTV) represents the average revenue generated by a customer throughout the entire lifespan of their relationship with the SaaS company. Comparing LTV or CLTV to CAC helps determine overall business profitability. Monitoring LTV also assists with budgeting for customer acquisition and gauging whether accounts warrant additional investment for retention or expansion. Given its role in quantifying long-term subscriber value and sustainability, LTV deserves a top spot on any analytics dashboard.

Average revenue per user (ARPU)

Average Revenue Per User (ARPU) quantifies net revenue driven by the average customer account over time. An increase in ARPU signals successful upsells or add-on purchases. Meanwhile, declining ARPU could reflect lagging feature adoption or reveal an opportunity for optimized packaging and pricing strategies per customer segment. Monitoring ARPU benchmarks whether existing accounts expand meaningfully amid efforts to grow the customer base.

Customer churn

Customer churn represents the percentage of customers that discontinue subscriptions over a given timeframe. Because acquiring new customers costs more than retaining existing ones, managing churn is critical. Churn dashboards monitor cancellation trends, identify at-risk accounts, and inform retention programs. No metric better indicates growth troubles and renewal optimization opportunities than sudden or excessive customer churn.

Customer retention

Customer retention measures the percentage of subscription customers that continue service during a given timeframe. Retention ratios demonstrate the stickiness of a SaaS product suite and inform budget planning. Tracking retention over the lifetime of a customer cohort also spotlights opportunities to improve long-term engagement through initiatives like customer success programs or loyalty incentives. Much like churn, monitoring retention rate trends forms a health check on the most profitable growth lever – expanding within existing accounts.

SaaS dashboard examples

There are hundreds of software-as-a-service dashboards used at companies every day to track everything from product launches to marketing campaigns to employee headcount. In other words, if you can collect data around a business function, chances are you can visualize that data on a dashboard.

Here are some SaaS dashboard examples across sales, marketing, and finance that you can use as a reference.

Sales dashboard: Geckoboard example

A Sales dashboard offers insights into customer acquisition and pipeline performance to inform staffing, activities, and tools for driving growth. Tracking key metrics like lead generation, sales cycle analysis, conversion rates, and rep-based trends helps keep the focus on strategic priorities. 

These dashboards also help identify potential coaching opportunities to assist sales teams in meeting their revenue goals. With an analytical lens on sales operations via customized dashboards, SaaS leadership can foster data-driven decision making for sustainable business growth.

As an example, here’s a sales pipeline dashboard from Geckoboard. Using a dashboard like the one shown here, Sales teams would be able to view their quarterly performance, average deal value, sales cycle lengths, highest value opportunities, and more all in one place.

sales pipeline dashboard from Geckoboard

Marketing dashboard: Zoho example

A Marketing dashboard delivers visibility into campaign performance, lead generation, pipeline velocity, and the return on marketing investment. Monitoring these metrics enables data-driven decisions on budget allocation, channel mix, creative assets, and content strategy. 

Marketing dashboards also quantify the impact of specific programs on acquisition and retention. By linking campaign analytics to sales outcomes, teams can optimize activities for the highest yield at the lowest cost.

This Google Ads analytics dashboard from Zoho is a great example of the insights busy marketing teams can plug into one place. Within this specialized dashboard, performance marketers can study their ad conversion rates, average cost per click, and compare ad performance over a five-month period.

Google Ads analytics dashboard from Zoho

SaaS metrics and analytics dashboard: Maxio example

SaaS analytics platforms like Maxio consolidates key subscription data into customizable dashboards for comprehensive business visibility. 

Maxio’s centralized interface tracks revenue metrics like MRR and ARR in real time while monitoring customer health via churn, retention, and engagement scores. These financial views also assist with cash flow, billing analytics, and financial planning activities. 

With an out-of-the-box dashboard aligning to common SaaS KPIs, platforms like Maxio allow companies to focus on improving their SaaS product, user experience, and making better business decisions instead of report building.

Maxio dashboard

Why not use a spreadsheet instead?

While spreadsheets like Excel provide basic data tracking, they fail to deliver the automation, integrations, and customization that a growing SaaS business needs to stay agile.

For high-growth startups, spreadsheet templates quickly become inadequate when you factor in the rapid pace of growth, vertical shifts, and financial ups and downs that are common with these types of businesses.

Spreadsheets are also notoriously difficult to collaborate inside of. Dashboards, however, centralize important insights by pulling data from many different integrated data sources. This way your team doesn’t have to assign spreadsheet management and maintenance to one person. 

And finally, spreadsheets just weren’t built to turn your business’s KPIs into meaningful data visualizations. At the end of the day, choosing to upgrade to a SaaS dashboard will give your entire team an intuitive visual interface to uncover data patterns, track performance trends, and ultimately make better business decisions.

Using Maxio to monitor your SaaS metrics and analytics

So there you have it. Now you know the metrics you should be tracking, what makes central SaaS dashboards a must-have tool across teams, and you even have a few examples of dashboards to reference.

Now, all you need is a platform to help you build these dashboards to use across your own organization. This is exactly why we built Maxio. Our platform helps SaaS businesses master core metrics around customer acquisition, account expansion, billing, finance, and more.

Want to start making better decisions about the future of your business? Schedule a demo with our team to get started.

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Your Plug-and-Play SaaS Metrics Dashboard

In this template, you’ll find a comprehensive set of pre-built SaaS metrics (that you can trust) to wow investors and make key business decisions with confidence.

Chart your path to profitability with metrics like:

  • Subscription Momentum (ARR, customer count, average ARR)
  • Churn & Retention (churn rate, renewal rate, net revenue retention)
  • Customer Lifetime Value (CLV)

Revenue modeling. It’s the most difficult aspect of financial planning, especially for startups that don’t have historical data to extrapolate future revenues. If you’re new to the software-as-a-service (SaaS) space, you may be wondering what the differences are between revenue modeling for subscription businesses as opposed to non-subscription companies. 

In this post, we’ll outline the two primary differences between revenue modeling for each type of business model.  

The primary differences between revenue modeling for a subscription SaaS business model vs. non-subscription business are how revenue is recognized over time vs. up-front and how your billings will affect your balance in deferred revenue. 

Revenue modeling: revenue growth over time

For non-subscription businesses, future revenue is unknown because it depends on future sales that have not yet occurred. This can cause major headaches when trying to estimate future revenue and cash flows. Non-subscription businesses often do not have an associated term; therefore, revenue is recognized on the date of sale.  

See the following example:  

Revenue Modeling_Non-Sub Based Revenue

By contrast, most SaaS solutions sell subscriptions with a start and end date, and revenue is recognized over the stated term. There are also several different types of pricing strategies that you need to consider before building a SaaS revenue model. For example, a single SaaS company may offer a freemium model, a flat-rate monthly subscription, and custom sales-negotiated pricing across their different product offerings.

However, modeling revenue in a SaaS business comes with its own set of upsides too.

For instance, it’s easier to forecast future revenue in a SaaS business because the future revenue recognition is known on the date of sale.  See the following example: 

Revenue Modeling_Sub Based Revenue

When modeling revenues for subscription-based businesses, think of the layers of a cake. Your Total ARR number is the entire cake, but you need to understand how that revenue grows over time, i.e., the cake layers that make up the whole. That growth is measured as follows: 

New business: Number of new customers*Average ARR

Expansion: Growth from existing customers, including upgrades, price increases, users or products added

Contraction: Declines in business from existing and continuing customers, including downgrades, price decreases, fewer users or products 

Churn: Loss of existing customers 

Revenue modeling: deferred revenue 

Deferred revenue is an accounting principle related to the accrual method we talked about before. Deferred revenue is revenue that you can’t recognize just yet because the service hasn’t yet been performed. 

In non-subscription businesses, sales are transactional, so revenue is recognized immediately. There is no need to defer revenue recognition because all revenue is recognized as soon as it occurs. See the following example: 

Revenue Modeling_Non-Sub Based Deferred

In subscription businesses, by contrast, the service is performed over a period of time; therefore, revenue is recognized bit by bit over the duration of the term. As the term goes on, your revenue goes up, and your deferred revenue balance goes down. This is important for reporting purposes because deferred revenue is recorded as a liability on your balance sheet. 

Revenue Modeling_Sub Based Deferred Revenue

The equation becomes more calculated when you factor in billing frequencies. At many SaaS companies, customers are billed all up-front to simplify things. After all, it’s always better to have cash-in-hand sooner rather than later. 

However, for companies where that’s not possible, billing frequencies have a huge impact on the cash runway, something that’s essential to budgeting for business operations and reporting to potential investors.

8 common pricing and revenue models found in SaaS businesses

There’s no one-size-fits-all revenue model for SaaS companies. Instead, most software businesses use multiple revenue models to fully represent the value provided by their tools and services. It’s also equally important to choose the correct pricing model for your business as this is what will be responsible for capturing the value.

Choosing the right mix of revenue and pricing models can put your company in the perfect position for revenue growth and stickiness. But on the flip side of that coin, if you choose a pricing model that doesn’t align with the unique value your company provides, you could experience huge revenue leaks and missed opportunities.

In this section, we’ll explore the eight revenue and pricing models that SaaS businesses frequently use to strike that perfect balance between value provided and revenue generated. You may even consider using one of the following models in your own business.

1. Subscription model

The subscription model involves charging a recurring flat fee, usually monthly or annually, for access to a SaaS product. It’s also the model people typically associate with the popular SaaS tools. Under this model, customers pay a recurring subscription to continually use a software tool or platform on a month-to-month basis.

How It Works

In the subscription model, users pay a flat monthly rate to access the core feature of a SaaS product — this doesn’t include any add-ons or additional models. These subscriptions can also be tiered to feature limits, number of users per account, usage capacities, or other levers to justify a fixed monthly rate. As a result, this model lends itself well to both business and consumer use cases.

Pros and Cons

The subscription model provides predictable recurring revenue streams by design. This is because it incentivizes software providers to focus on improving customer relationships to ensure they continue paying for software access each month. Offering customers discounts for annual commitments or multi-year terms is another big perk of this model, as it allows business leaders to increase their customer lifetime value and forecast future revenues more easily.

On the flip side, companies also run the risk of customer churn on a monthly basis under this model. But overall, monthly subscriptions are a staple SaaS monetization strategy, and they’re not likely to disappear anytime soon.

2. Usage-based model

Unlike flat-rate subscriptions, the usage-based model prices access to SaaS products based on actual volumes consumed. In other words, customers pay precisely for what they utilize rather than bundling a set amount of features or models into a single subscription tier.

How It Works

In usage-based pricing, certain SaaS metrics are used to measure how customers are charged for their usage — metrics like:

  • API calls made
  • Data storage space used
  • Computing power leveraged
  • Data transfer volumes

…drive incremental usage charges.

This model also gives customers better bang for their buck based on their usage of a SaaS product — lower utilization customers pay less, while higher activity ones pay more.

Pros and Cons

Usage-based pricing aligns costs very closely to the value delivered per customer. This is because companies only need to pay for the precise resources their customers are using at any given time — generally speaking, at least. 

However, there are some challenges that still exist within this model. 

For instance, spiky or volatile usage across a customer base can make it difficult to accurately forecast revenue throughout the year. Additionally, other variables like seasonality and swings in the market can impact a company’s bottom line unexpectedly if they’re solely operating under a usage-based pricing model.

3. Per-user model

Next up on the list is the per-user pricing model. The per-user approach charges subscription fees based on the number of individual user accounts on a SaaS platform (e.g. number of employee licenses or seats on Zoom, Slack, etc.).

How It Works

Per-user pricing aligns directly with the number of employees or end users that need access to the software tool in question. Typical pricing includes:

  • $5 per user per month
  • $50 per user per year
  • Volume discounts at tier levels like 10, 25, 50+ users

Pros and Cons

Charging per user allows companies to scale their tech stack costs in direct proportion to the number of users in their organization who need access to these tools. This means that small teams typically pay less, while larger companies using a greater number of licenses will pay more. 

However, the “per user” approach discourages account sharing behaviors as it can lead to unwanted revenue leakage for software vendors. Similarly, per user pricing also makes it more difficult to forecast future revenues when compared to a less volatile pricing model like flat-rate pricing.

4. Transaction fee model

Unlike fixed or consumption-based pricing, transaction fee models charge a small percentage based on activity volumes like payments or shipments handled within a SaaS platform.

How It Works

Most transaction fee models work by taking a small cut of volumes transacted through a SaaS platform. These fees can be based on different variables such as:

  • Payments processed
  • Subscriptions billed
  • Orders shipped
  • Appointments booked
  • Leads generated

The most common transaction fee percentages range from 1-5%, but these percentages can vary widely based on the industry, use case, TAM, and any other variables that impact who is using the software and what they’re using it for.

Pros and Cons

Similar to consumption-based pricing, the transaction fee pricing model ties revenues tightly to platform usage. This makes it easy for SaaS vendors to scale revenue as transaction volume increases.

However, the revenue generated from transaction fees can ebb and flow based on the types of transactions they’re using to generate revenue, as well as any seasonality that could impact the volume of these transactions. Startups using this pricing model may also find it difficult to get funded at first because they don’t have the same fixed monthly recurring revenues you’d typically find at companies using a flat-rate model. Additionally, building the payment and transaction capabilities required to leverage this type of model requires significant development work.

5. Freemium model

With a freemium model, companies offer a free, limited version of their SaaS product to attract user signups. Then, they can leverage their existing user base to upsell a small percentage of these customers to paid premium plans.

How It Works

Freemium models are designed to get potential customers in the door by giving them access to basic features and functionality. Once those users begin to show signs of retention, they can be upsold to a premium plan that would give them access to a greater number of features. Some of these premium features could include:

  • Greater usage capacities
  • Premium customer support
  • Brand customization and white-labeling
  • Dedicated account managers

This incentive-based approach is what makes the freemium model so profitable. First, you get users hooked on your software. Then, you upsell those users to scale revenue. 

Pros and Cons

SaaS companies can use freemium models to leverage broad accessibility and organic sharing to rapidly build and scale their user base. 

But only a small fraction of these free trial users will turn into paying customers. Because user acquisition and monetization are wildly unbalanced in this pricing model, companies considering this model will need to forecast their user conversion rates ahead of time. If companies can only convert a small percentage of free users into paying customers and still turn a profit, then this pricing model may be a good choice.

6. Integrated value-added services

Rather than just providing access to their software, some SaaS providers sell packaged bundles — these “bundles” typically include a blend of software subscriptions with customized professional services added on top.

How It Works

Within a value-added model, SaaS companies seek to scale revenue by upselling powerful add-on features that provide additional value to their users. A few value-added offerings include:

  • Implementation and rollout services: This typically includes done-for-you implementation services, data migration, and user onboarding and change management support
  • Ongoing administration: This includes platform management and updates, automation tools, and custom integrations
  • Training and enablement: This offering includes online and onsite user training, admin and power user education, and additional playbooks and collateral-related software training

This “white glove” approach allows software companies to unlock additional streams of revenue without needing to develop new products, features, or modules. Instead, they can leverage human-powered services to scale revenue and create a more personalized experience for their users.

Pros and Cons

Bundling professional services alongside a core SaaS offering can quickly raise a company’s average deal size and increase their customer satisfaction scores. However, the costs associated with these white glove services scale as well. Ultimately, companies using this model will need to determine if the additional revenue generated and increased user retention rates driven by these value-add services are worth the costs they incur.

7. Referral and affiliate fees

A referral or affiliate program rewards existing users for driving new customer sign-ups via word-of-mouth marketing. This is a great way for SaaS companies to generate additional revenue without needing to offer additional features, add-ons, or professional services.

How It Works

Typically, existing customers will share a unique referral link or code with peers who go on to purchase a piece of software. This can earn both the new and existing users incentives like:

  • Account credits
  • Free months of access
  • Cash rewards
  • Gift cards
  • Entry into contests

Pros and Cons

Referral programs incentivize organic evangelism, increase brand awareness, and can drastically reduce a company’s customer acquisition costs (CAC) when done well. However, getting these programs off the ground takes time and typically only works if you already have an engaged user base. There are also some short-term revenue impacts that companies should take into consideration when offering discounts and account credits to new users.

8. Feature-limited tiers

A feature-limited tier works by packaging and restricting advanced features and functionality based on pricing tiers. Users are then encouraged to upgrade their subscription plan at a higher cost to gain access to additional features, modules, integrations, or other features that could provide additional value. 

How It Works

With feature-limited tiers, companies can put a paywall in front of certain features, including:

  • Number of connected apps/data sources
  • Advanced reporting and analytics
  • Real-time visibility
  • API access
  • Premium support

Pros and Cons

Feature-limited tiers give SaaS companies the flexibility to serve both SMB and enterprise buyers through incremental plan constraints. However, the feature gaps between these pricing tiers shouldn’t overwhelm your basic users or underserve your premium ones — each pricing tier needs to strike the right balance of value provided and cost required for this model to be successful.

Key metrics to include in your revenue model

If you want to determine whether or not your business is sustainable, you need to make realistic assumptions about your revenue growth rate and customer retention patterns. Here are the metrics we recommend you include in your revenue model to track these patterns:

  • Churn Rate: The percentage of customers canceling subscriptions each month. A high churn rate signals a company is facing issues with customer retention.
  • Customer Lifetime Value (CLV): The total revenue expected from an average customer over their entire lifecycle. A higher CLV typically means more revenue generated per user overall.
  • Annual Recurring Revenue (ARR): Your projected yearly recurring billings for renewals and new signups.
  • Average Revenue Per User (ARPU): This is the forecasted average payments collected per subscriber each year.

Correctly tracking the metrics above is key to properly assessing the health and long-term viability of your business. 

Common pitfalls when transitioning between revenue models

Switching to a subscription-based revenue model comes with its own set of growing pains, and many SaaS leaders don’t know how to properly set up or interpret these models to accurately track their financial performance month-over-month. These are the most common pitfalls that occur when transitioning to subscription-based revenue models (and how to avoid them).

1. Underestimating the impacts of deferred revenue liability

Shifting to subscription pricing can create a “deferred revenue liability” in most SaaS companies — this is money collected upfront for services that are yet to be delivered over the contract term. And when you factor in annual contracts, these deferred revenue balances can pile up into the hundreds of thousands to millions of dollars range.

The key to avoiding these deferred revenue balances is by reconciling your new sales with your existing deferred revenue drawdown rates. For example, if $10 million liability exists, and it draws at $2 million per quarter, then 8 million net new billing is required to post $10 million revenue that quarter. In other words, if you don’t reconcile your compounding upfront payments, you’ll be facing some pretty severe discrepancies during your monthly and quarterly financial reviews.

2. Focusing on new sales over renewals

In SaaS, renewals are just as important as new customer acquisition — especially as you start to scale.

With this in mind, your pricing strategies and sales commission structures should incentivize renewals equally to new customer acquisition. Not only do high renewal rates make it easier to forecast future revenue, but they also decrease the risk of volatility in your business caused by churned customers. 

Once you’ve built out the infrastructure needed to ensure customers, you need to ensure that your revenue models are capable of tracking new sales vs. renewals. This will give your executive team greater visibility into how revenue is ebbing and flowing in your business and whether these changes are the result of customer acquisition and churn or user monetization and subscription downgrades.

3. Not linking the model to a broader financial plan

When transitioning to subscription pricing, your revenue model can’t exist in a silo — it needs to connect with your broader financial planning efforts. For example, how is your monthly subscription revenue impacting your company’s revenue targets, profit margins, and cash flows?

If you don’t have visibility into how your monthly recurring revenue (MRR) is impacting your company’s financial health across these different variables, it will be near impossible to assess the health of your business on a monthly basis or make accurate future forecasts.

The complete guide to SaaS revenue modeling

Want to learn from the experts how to build a successful SaaS revenue model? Download The Complete Guide to SaaS Revenue Modeling today to get started with your own model.

In the guide, Burkland’s Debbie Rosler and Maxio’s Jon Cochrane dive into the key components of revenue modeling and even provide a template to help you get started. Here’s a quick preview of what you can expect to learn:

Chapter 1: Fundamentals of SaaS ARR and Revenue Modeling

Chapter 2: Bottoms-Up or Revenue Driver ARR Modeling

Chapter 3: Top-Down or Trendline ARR Modeling

Chapter 4: Forecasting Cash Flow Associated with ARR

Chapter 5: Key Takeaways and Free Metrics/Revenue Modeling Template

Key takeaways

  • The main difference between revenue modeling in a subscription vs. non-subscription businesses is how revenue is recognized. 
  • Projecting future revenues from a subscription business is less subjective because they are recognized over a specific period of time, whereas there’s no guarantee of future revenues in a non-subscription business.
  • Clearly understanding deferred revenue balance and how your future billing schedules may increase or decrease that balance becomes essential when projecting your future cash flows.

For more tips and tricks on how to build a revenue forecast, check out Ben Murray’s SaaS Revenue Forecast Model.

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The complete guide to SaaS revenue modeling

It’s difficult to build a SaaS revenue model that accurately reflects your future cash position. In this guide, we’ll show you exactly how to collect, measure, and use these metrics to build a long-lasting revenue model that will grow with your business over time.

What you’ll learn

  • Two methods for forecasting ARR
  • How to model cash flow associated with revenue
  • How to build an ARR momentum table

Get the ebook

When I started fundraising for SaaS Capital in 2006, PE firms were dismissive of SaaS. 

They thought the model only worked for companies serving the SMB market and that SaaS was generally an unprofitable approach. All that changed around 2010, and now, PE firms dominate the SaaS landscape. If you are looking to sell your SaaS business, it’s highly likely a PE firm or a PE-backed firm will be the buyer. 

PE thinking shifted again in 2020 to what we see today. They are still active in SaaS but have shifted from valuing businesses based on revenue to valuing them based on future cash flow. I have recently chatted with dozens of PE firms, and while not monolithic, the following statement holds for all of them.

Future EBITDA is the basis of PE SaaS valuations.

Because PE firms think this way, VCs have to follow suit. If you buy into a business on a revenue multiple and then sell on a cash flow multiple, you will (generally) lose your shirt. So, the shift in PE thinking has directly impacted how VCs evaluate and price SaaS transactions. It’s also fair to argue that the PE firms are downstream from the public markets, and the public market shift started this whole process.

For many folks in the investment community, the shift to EBITDA valuations is long overdue. Revenue was never a particularly good input for valuation. Some revenue is very profitable; some is not; some is sticky, and some is less so. However, in the early days of SaaS, revenue was the only input that worked.

Given the shift to EBITDA, what are the implications for SaaS business in fundraising or sale mode? It depends on your stage and what you are trying to accomplish.

Early-Stage — Minority Fundraise: 

Early-stage companies are defined as those with less than $3 to $5 million of ARR. If you are raising an earlier-stage round, you need to demonstrate the building blocks of future cash flows rather than actual profits. Battery Ventures described the most straightforward way to do this, which divides your business into two parts: a cash engine and a growth engine.

The cash engine is your capacity to generate cash from acquired revenue over time. Its key levers are gross margin and net retention. Battery focuses on recurring revenue, COGS, R&D, and G&A. Basically, how much do you make on an existing customer on a fully loaded basis? A good benchmark here is 35%, and 50% is best in class. You then determine what to do with this cash, which leads to the growth engine.

The growth engine measures your capacity to turn sales and marketing dollars into new revenue. Its metrics are the CAC Ratio and Burn Ratio. The more efficiently your business can capture new revenue, the better. The CAC Ratio is the simplest of the CAC metrics and measures how many dollars of sales and marketing expenditures it takes to get one incremental dollar of ARR. If you can spend one dollar on sales and marketing to get one incremental dollar of ARR, you will be in the top quartile.

It’s acceptable for an early-stage business to lose money as long as it efficiently converts losses into new revenue and the revenue is sticky and profitable.

That said, even with excellent unit economics, as described above, VCs will also want their capital to drive the business to a point where meaningful profits are on the horizon because that is how the next round will be valued. So, an early-stage raise needs to move the business to where it’s on the cusp of generating profits. Model your forecasts and investments accordingly.

What are current early-stage valuations? 

This is not an answerable question in a way that is helpful for companies raising money. The mathematical answer from Carta is the median pre-money valuation for a series A was $48 million in Q4 2023. However, no one reports the multiple of ARR, and they certainly don’t report growth rates. It’s also important to understand that priced series A rounds occur later in a company’s life than a few years ago. Often, several SAFE rounds have been raised before the series A.

Early-Stage — Company Sale: 

SaaS companies with less than $3 million in ARR don’t generally have enough scale to meaningfully impact the buyer’s future EBITDA and are typically positioned as a “Capability Add-on.” 

In these cases, the product itself becomes very important. Can it be easily added to a buyer’s product portfolio and cross-sold? This is harder than it looks. Buyers are skeptical. A buyer CEO recently said, “I have heard about cross-selling, just never seen it.” Your product must be highly complementary to the buyer’s products, and your ideal customer needs to be very similar.

At the very early stage, buyers will weigh buying your company versus building a similar product themselves. This is not a particularly strong position for the seller, given that acquired products still need integration and may not fit the current tech stack of the buyer.

That said, buyers will pay higher multiples in this area if you find the right fit because the total dollars are less.

Later-Stage — Minority Fundraise: 

If you are raising a later-stage round (defined here as ARR above $5 million), positive cash flow should be clearly within reach based on the current capital raise and without relying upon hockey stick assumptions, cost cutting, or significant margin changes. Being capital-efficient is not enough.

In this environment, the Rule of 40 is instructive. The Rule of 40 is the company’s annualized growth rate plus its operating margin. If raising later-stage capital, your projections should show significant growth and at least some profit. Remember that the focus is on future profits, not current ones. Current profits show how the business makes money, and growth indicates how big the profits can be in the future. Both are required, but growth is valued more highly.

Later-Stage – Company Sale: 

Larger SaaS companies will be valued based on their capacity to generate cash and will generally be categorized as platform or tuck-in companies. Platforms are businesses the PE firm will support with future capital and resources to grow and make future acquisitions, and tuck-ins are companies that will be merged into a platform.

Companies seen as platforms by PE firms are valued like a later-stage minority round described above. To become a platform company, you need to have solid growth and profitability, operate in a sector the PE firm thinks is ripe for consolidation, and have an experienced team capable of absorbing acquisitions.

If your SaaS company is more likely a tuck-in, PEs will model the combined entity’s cash flow potential. They will look closely at retention and headcount. If the business retains revenue and reduces costs, it can substantially increase cash flow. Be prepared with detailed revenue by customer-by-month schedules, contracts, and employee census data. Also, buyers will look closely and critically at cross-selling opportunities as described above. 

Creating a Competitive Process: 

VC and PE firms will try to pay as little as possible, regardless of how they model their valuations. The modeling described above establishes the top of their valuation range, not the bottom.

Creating leverage is the only way to achieve maximum value for your business. You can do little to improve the terms if you have one offer and need to sell or raise capital. 

Having negotiated hundreds of debt and equity deals primarily as an investor but also as an intermediary, I estimate that valuations are 20% to 30% higher for a company in a competitive process vs. a stand-alone transaction. This valuation benefit of competition should be intuitive in our daily lives, such as when selling a house. Still, I’m always surprised how many founders and executives don’t work hard to create a competitive environment.

The 20% to 30% competitive valuation premium translates into millions or hundreds of millions of dollars.

You don’t necessarily need to hire an advisor to create a competitive process if you have the skills and resources internally. Still, you do need to be intentional about running a process.


Except for seed deals, valuation methodologies have shifted from revenue multiples to cash flow at every stage of the SaaS market. You may not have noticed the shift because you can always take a company’s valuation, divide it by ARR, and get a valuation multiple, but that’s not how investors are doing their math these days.

The mindset is forward-looking cash flow.

Understanding the PE mindset before engaging with them or VCs will help you best position your company to maximize value.

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Your Plug-and-Play SaaS Metrics Dashboard

In this template, you’ll find a comprehensive set of pre-built SaaS metrics (that you can trust) to wow investors and make key business decisions with confidence.

Chart your path to profitability with metrics like:

  • Subscription Momentum (ARR, customer count, average ARR)
  • Churn & Retention (churn rate, renewal rate, net revenue retention)
  • Customer Lifetime Value (CLV)

Have you ever looked at your competitors that claim to be serving a ‘billion dollar market’ and wondered, “there’s no way their TAM is that large!”

If so, you’d probably be right. Sure, a founder could quickly spin up an idea of what their slice of the market looks like to pique the interest of the investors, but nine times out of ten, these claims don’t translate to actual paying customers.

But before you go pointing fingers at these founders, you have to understand that there are plenty of myths surrounding how total addressable markets (TAMs) are actually calculated and understood — we’ve dubbed these as the “5 myths of market sizing.” We even recorded a whole webinar on it which you can watch here.

In this article, we’ll be debunking these myths around TAM analysis and show you how to use this data to make better business decisions.

Defining TAM and SAM

Before debunking these myths around market sizing, we need to agree on some key terminology:

Total Addressable Market (TAM): TAM refers to the total market opportunity that is available to your company in a perfect world where you have the ideal product offering and 100% market share. Think of it as the entire universe that your product orbits in.

Serviceable Addressable Market (SAM): Also called Served Available Market, this is the subset of the total addressable market that you can realistically serve given your current products, pricing, processes, partnerships, and overall business model.

For example, if you’re launching new telemedicine software, your TAM may consist of all healthcare spending globally that’s expected over the next decade. It sets the outer bounds for what’s possible.

In contrast, your SAM factors real-world constraints on your end-user audience (e.g. developed countries with widespread smartphone adoption), product capabilities (e.g. urgent care not surgery), and addressable channels (e.g. partners that allow a white-labeled offering). The summed revenues of this subset are what make up our serviceable available market.

As Gustafson puts it, “Half the world is men. That doesn’t mean half the world will buy your shaving kit.” That’s what TAM vs. SAM is all about. TAM attracts headlines, while SAM attracts budgets, and getting both right allows you to make business decisions rooted in reality.

5 myths around calculating TAM

Now that we’ve defined TAM and SAM, let’s explore some of the myths that can undermine your TAM analysis.

Myth 1: A big market automatically equals success

Truth: Targeting a large TAM doesn’t guarantee customer acquisition. Instead, you need to be very deliberate in your product-market fit work to achieve competitive differentiation.

It’s a common fallacy among entrepreneurs and investors alike — the bigger the total market size, the easier it will be to achieve product-market fit, gain customers, and grow revenue. This is a talk track that has left many an entrepreneur with big ambitions and empty wallets.

While pursuing a huge market opportunity might seem enticing on paper, the size of the total addressable market (TAM) prize only matters if you have a credible and differentiated product and value proposition to capture it. Basically, unless you can differentiate yourself based on your company’s niche, GTM model, price, quality of service, etc., you’ll just get beaten down by the established legacy players in your market.

Myth 2: Pre-packaged TAM figures are sufficient

Truth: Forrester and Gartner don’t know your product, customer segmentation, or market penetration. Relying solely on these third-party data sources leads to unrealistic market sizes.

When developing a top-down view of your total addressable market potential, it’s tempting to solely reference the big analyst numbers that are already out there for your target industry or software category.

However, while third-party market research reports can be a helpful jumping off point, their broad conclusions don’t take into account your unique value proposition. In other words, they’re operating off sweeping generalizations about what your product does and who it serves.

Some of the other variables that industry headline figures ignore include:

  • Willingness to pay: Are your users underserved and willing to spend more for your unique benefits?
  • Current market gaps: Does your product fill existing gaps in the market?
  • Impact of realized pricing: How will volume discounts, product bundling, and temporary promotions lower your average selling price compared to list pricing?

If you really want an accurate depiction of your TAM, you shouldn’t rely on industry figures alone. Instead, you can conduct current user interviews, analyze your sales and discovery calls, or review industry benchmarker based on real user data to better understand your TAM.

Myth 3: Your TAM and SAM are the same

Truth: Claiming a market size based on adjacent or existing markets leads to inflated and inaccurate representations of your TAM.

Another common mistake is conflating the total addressable market (TAM) and serviceable addressable market (SAM). However, as defined earlier, TAM and SAM differ fundamentally in their market share assumptions.

While TAM refers to the total revenue opportunity with 100% market domination, SAM factors real-world constraints on product, pricing, partnerships, and promotions to arrive at a realistic group of customers you can actually serve.

Without defining your exclusive wedge into a broader market, new ventures can’t credibly claim multi-billion dollar SAMs in the early years. 

If you want a more accurate depiction of your SAM, you need to start factoring in the following variables:

  • Target personas: Industry, company size, role titles, and tech fluency
  • User behaviors: Current workflows, pain points, and switching costs
  • Direct competition: Incumbents, alternatives, threats
  • Go-to-market: Channels, partnerships, and promotions

By framing your serviceable addressable market against the wider competitive landscape, you can start carving out a realistic path to unlocking your broader TAM.

Myth 4: Adjacent market equals my market

Truth: You can’t claim an adjacent market to overinflate your own market opportunity.

When analyzing your total addressable market potential, it’s tempting to look at hot or rapidly growing adjacent spaces and claim, “Our market is that big!” But no… you can’t point to an adjacent market to inflate your own potential.

Instead, focus on analyzing your direct competitors — products that are targeting the same users or solving the same pain points. Sizing your TAM based on these comparable solutions will give you a better idea of your market potential.

Sure, an adjacent market analysis still provides useful context on general trends, partnerships, and future expansion opportunities, but it tells you very little about the customers you can currently serve.

Myth 5: TAM is static over time

Truth: Your TAM will continually evolve over time.

According to Gustafson, “Markets are continuously evolving based on trends like globalization, consolidation, regulation, and innovation. Periodically reevaluating your TAM allows you to spot new adjacencies before competition stakes their flags there.”

In other words, a TAM analysis is never a one-and-done process. Several different assumptions go into market modeling, including growth rates, churn, and pricing, for example — you need to continually update these assumptions for your TAM analysis to remain relevant.

Additionally, if you aren’t regularly analyzing your TAM, you run the risk of getting stranded in a shrinking niche. By checking in on your TAM, you’ll be able to stay one step ahead of the competition and position your company for future growth opportunities.

How investors view TAM

Beyond your company’s own operators and executives, your TAM projections also inform the way investors think about fundraising and exit planning. Here’s a glimpse into how investors process market sizing assumptions:

Assessing opportunity and exit potential

Savvy investors typically apply various mental models to translate your future TAM into return potential. 

Some of the more common methods for calculating potential ROI include:

  • Target revenue at exit based on comparable exits or expected multiples
  • Required market share to hit target revenue if TAM is much larger
  • Feasibility of capturing required share given competitive assumptions
  • Expected dilution from future fundraising rounds

So even if you have a sizable TAM, investors will still scrutinize your company’s valuation and fundability based on the current trends and dynamics of your market.

Future market direction and evolution

Investors will also assess if your early TAM assumptions show any future potential for longer-term expansion. For example, many enterprise software companies are able to serve multiple verticals and customer segments — would your company be able to expand into an adjacent market? Or serve customers upmarket or downmarket?

Even if you have an incredible niche SaaS product, your company’s future potential will affect how investors assess your funding eligibility and exit valuation.

Timeframe considerations

While your TAM may reach billions of dollars down the road, investors care most about what markets will be accessible to you over the next 3-5 years. In other words, if your $10B TAM realization depends on some rapid shift in consumer behavior that’s decades away, investors will discount projected revenues or extend their projected payback timelines.

3 ways to measure and track your TAM over time

At this point, we’ve dispelled all the myths on TAM claims and have shown you how investors think about your market size from their perspective. Now, let’s explore a few techniques you can use to measure and track your total addressable market over time.

1. Market share analysis

Analyze competitor annual reports, third-party data, and related information like recent job postings, competitor reviews, or recent funding news in your space. Based on this data, you can start to determine if you’ll be able to compete for market share. For example, if the top players in your space represent 60% of total market share, you still have a solid chance of earning your own share of the market. 

2. Study market participation rates

Within your segment, determine how many customers, on average, are looking to switch solutions in a given year based on average market participation rates. If you notice that existing customers switch software vendors every few years, you can expand your future TAM based on these potential customers. The only caveat here is that these future prospects need to be a good fit for your product or service based on the pain points you help solve.

3. Examine the growth of your category

When it comes to measuring your future TAM, you’ll want to factor in how your market is projected to grow or shrink in the near future. You can use historical data from research firms and associations to inform these assumptions; however, you should also factor in external variables as well:

  • Are tech budgets expected to grow/shrink?
  • Is your vertical or sector becoming commodified?
  • Will there be future users experiencing a pain that you’re uniquely positioned to solve?

All of these variables will help you determine how your category is expected to grow or shrink in the future.

Your TAM serves a strategic purpose

In closing, let’s review some of the big takeaways from CJ’s thoughts on how to leverage your TAM correctly.

  1. The size of your market should be used to inform your business strategy, not inflate the egos of your founders and executives
  2. Be sure to draw a clear line in the sand of what your TAM vs. SAM looks like so you can accurately assess your current and future market potential 
  3. Conducting regular TAM analyses will keep your business decisions grounded in reality
  4. Be a student of your market. Keeping tabs on market trends and dynamics will make it easier to adjust your TAM as needed.

Ultimately, TAM exists to help your business leaders make better decisions about your company’s current and future trajectory—but you need the right data to inform your decisions.

If you want more insights on how to use your TAM, check out our full webinar with our CEO, Randy Wootton and guest CJ Gustafson, 5 Myths of Market Sizing: Debunking Common TAM Misconceptions.

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