How to measure performance in a pre-revenue business
This week I read a quarterly earnings report of a fellow SaaS company that we, as Eventerprise, share this beautiful subscription economy with. It shows a profitable, working operating model, due to the various internal teams finding their mojo and working together in revenue-generating harmony — as is evident from the golden thread that links customer acquisition cost (CAC), churn rate, monthly recurring revenue (MRR) and lifetime value (LTV) together.
The report is a great read. Few would dispute the inverse correlation between a growing MRR and a declining CAC. These are numbers that staff, investors, and even customers would be proud of. The numbers tell a story of a business that has done the hard work to lay a solid foundation for their success.
As the head of finance for Eventerprise, I often look at our SaaS ratios and the bottom line is, as a pre-revenue business focused on our customer acquisition strategy, we’re still in our infancy and the traditional SaaS ratios do not reflect everything we have accomplished as a business.
Telling your sales and marketing team that their CAC is incalculable because the laws of mathematics state that you cannot divide by zero, is not exactly a metric that will drive motivation at the weekly sales meeting. This begs the question, if we can’t use standard SaaS ratios at our current growth stage, what metrics should we be looking at?
General wisdom dictates that a single, quantitative measure is best, because it captures focus, drives motivation, and if done right, provides all the various internal teams with a map leading to revenue realization.
Michael Porter, an advocate of the above strategy, is not a name you’d hear as often as ‘Zuckerberg’ or ‘Tzuo’ in startup circles, but Porter postulated that the key to strategic success is selecting one of four generic strategies, and then continually striving for achievement no matter what the economy or customers have to say about it.
On the other hand Silicon valley startups, and entrepreneurs like Elon Musk, have shown that an organisation can focus on a host of ideas at the same time, and still be successful.
At Eventerprise, we see more value in the latter. Instead of following Porter’s strategy of rallying our team behind a single metric, we prefer to focus on several avenues of potential success simultaneously.