The SaaS CFO - First Five KPIs - with Ben Murray

**Ray Rike** (0:01)
Welcome to today's edition of the Rev Ops Squared video blog. Taking a different approach today, and I just feel so honored that I have the SaaS CFO Ben Murray on the video today. Hey, Ben.

**Ben Murray** (0:15)
Hi. Hi, Ray. Thanks for having me.

**Ray Rike** (0:19)
So honored that you're willing to join us today to talk about my number one passion in business, and that is key performance indicators for B2B SaaS companies. And Ben, what do we allow you to introduce yourself to the audience, the work you've been doing as the SaaS CFO?

**Ben Murray** (0:33)
Sure. Yeah, sounds good. Yep, I've been a SaaS CFO for the past eight years, so practice everything that I put on my blog. I've been authoring my blog for the past four plus years, starting with a post on how to forecast headcount, and it's kind of just scaled from there. I really love sharing my knowledge, my templates, so other folks can benefit from those, and that's become pretty popular. I love everything about SaaS Financial Operations, SaaS Metrics, so I love talking SaaS.

**Ray Rike** (1:04)
Great. Well, thank you for joining us. For those of you who don't know me, my name is Ray Reich. I'm the founder and CEO of Revop Squared. Revop Squared is a publisher of the B2B SaaS Performance Index. It really allows SaaS CEOs and CFOs to understand how their operational effectiveness and efficiency measures up to their peer groups. As one of the things that we found as we were working with hundreds and hundreds of SaaS companies was everyone measures their company KPIs, Key Performance Gators, differently. We found a need to help standardize how B2B SaaS companies measure their performance, beyond some of the traditional enterprise value metrics such as the Rule 40, Cap Ratio, Gross Dollar Retention. So we published our KPI framework. And in the KPI framework, we identified what we believe are the most important first five KPIs. And Ben, I know you've had a chance to review that. We talked a little bit about that. For the audience, those first five KPIs that we always ask our customers to really drill down on are Rule 40 It's the combination of their growth rate plus their free cash flow as a percentage of revenue. Some people use EBITDA as a proxy for that. Number two, cap ratio, which really measures the efficiency of how they're investing their marketing, sales, and customer success dollars for new name customer acquisition ARR and expansion ARR. Of course, gross dollar retention and net dollar retention looks at the value their customers are getting from their product as measured by the retention and growth of buying more of their product. The fourth is the customer lifetime value to cap ratio, which really looks at the gross margin efficiency and customer retention efficiency over the life of the customer.
Then gross margin. We call gross margin the hidden bottle plier because it really generates the free cash flow. Even if you stop investing in marketing sales to get new customers, that free cash flow can last six, seven, eight years. Ben, what's your perspective on the most important KPIs, kind of the first five KPIs that you believe SaaS companies should be capturing, measuring, and using to make decisions?

**Ben Murray** (3:21)
Yeah, I'd say definitely those are great five metrics to measure, for sure. honestly, it really depends on your stage of business. If you're a startup and just figuring out product market fit, your go-to-market strategy, it's probably more sales analysis, go-to-market strategies, lead flow. For example, like rule of 40, that's something I use a lot, but I think that's something that would be more, say, growth and scale mode, maybe not startup mode that you're looking at rule of 40 Of course, you should have some awareness of these, but some of them kick in at certain points, and as you scale and you get bigger, then obviously all of these should be measured. But they're all good fundamental SAS metrics that I believe should be measured at some point in time. I'm a big fan of the CAC ratio. Of course, with your SAS metrics journey, it's baby steps. You have to start at the beginning, good financials, good accounting, really understanding your recurring revenue, gross margins, so fundamental financial management, which lets you then roll into measuring these five KPIs, these five SAS metrics. Again, they're all great.
I measure all of them, but they do kick in at certain points in time for sure.

**Ray Rike** (4:48)
Ben, totally agree with that. I've had several CEOs of some 1 million ARR SAS companies call, say, I'd really like to understand more about where I compare to the industry benchmarks for CAC ratio. First question I ask is, well, let's talk a little bit about where you are from a product market fit perspective. How many customers do you have? How much are they paying? How repeatable have you found the customer acquisition process? Very quickly, you realize I'm a big fan of the traction gap that Bruce Cleveland wrote. He talks about going from minimal viable product to minimal viable repeatability to the minimal viable traction. If you're not at a point where you think you have a good idea of what your ICP is, your ideal customer profile, and some level of customer acquisition repeatability, some of these ratios just aren't as important. You'll do anything to get your first 5 to 10 customers, but to get the next 100, you want to do it a little bit more efficiently.