Service companies (SaaS, professional services, etc.) usually generate recurring revenue based on subscriptions with their customers. JustOn supports subscription billing with recurring and transactional (usage-based) items. Now the companies need continuous reporting about subscription-based KPIs, too – like, for example, MRR (monthly recurring revenue) or Churn (rate of discontinued subscriptions or lost revenue).
Understanding KPI Reporting
Take, for example, companies that provide SaaS services. In order to run their business and to get a complete overview of their financial data, they usually distinguish between bookings, billings and revenues:
- Bookings provide a view on the growth of the business. You can analyze the past and near future using the reports based on actual bookings. Basically, they reflect how well a business model scales and how well the sales team performs. Common KPIs include MRR (monthly recurring revenue, based on subscriptions) and Churn (rate of discontinued subscriptions or lost revenue). Taking this one step forward: Actual subscriptions allow for forecasting the future cash position.
- Billings indicate the amount of money that has been invoiced and that is to be collected from customers. They provide information about the cash that a business can expect in the near future. Common KPIs include ARPA (average revenue per account) and CLTV (customer lifetime value). Additional reports may inform about the invoiced amount by product group, the total invoiced amount by account or the amount of tax to pay.
Revenues represent a view on the financial situation of the company. JustOn revenue reports are based on bookkeeping data for invoices, which provide information about
- the revenue that can be recognized in a certain booking period, like a yearly invoice split into monthly revenue amounts – it can show the billed and recognizable revenue as opposed to the deferred revenue
- the revenue that is not yet billed but can be forecasted based on the existing bookings, providing a view on the future financial data – this is the amount that is not billed yet but booked, that is, the forecasted revenue by booking periods.
Now adding the dimension time to bookings, billings and revenues results in the following SaaS reporting scheme:
SaaS KPI reporting with JustOn
KPI Reporting Support in JustOn
For analytics and reporting purposes, JustOn introduces specific metric objects that can be set up to track billing-relevant changes: account metrics, subscription metrics and cash metrics.
The metric records can give valuable insights into your business by displaying the recurring revenue for the current or a future date, recurring changes (like growth or churn), or expected cash flow on a monthly basis. That is, they provide previews of expected revenues based on current subscriptions but do not track generated revenues.
In addition, you can use the metric records in order customize the JustOn reports or to build your own reports in Salesforce (see Business Reports).
- Account metrics and subscription metrics
- Account metrics and subscription metrics display recurring revenues and growth/churn rates. They track changes to recurring and transactional items, like creation, termination or price/quantity modifications, on a monthly base to produce MRR values.
- MRR values make up the base for further KPIs, like churn or ARR. JustOn directly saves churn values into the metrics records, whereas the calculation of other KPIs (ARR, ARPA, etc.) is subject to dedicated business reports.
- Account metrics aggregate data over all subscriptions of an account, whereas subscription metrics consider individual subscriptions. Your business decides which to use:
- Your accounts may have multiple active subscriptions. If you want to display the recurring revenue or growth/churn rates aggregated over all subscriptions of an account, you use account metrics.
- If you want to display the recurring revenue or growth/churn rates for individual subscriptions, you use subscription metrics.
- Cash metrics
- Cash metrics display a business's expected cash flow. They track current changes to the amount of one-time, recurring and transactional items of active subscriptions.
- To create cash metrics, JustOn "simulates" an invoice run per month and aggregates the resulting amount. That is, one cash metric record shows the same amount data as a monthly invoice run for a subscription would produce.
- Cash metrics
The decision whether to create MRR metrics or cash metric depends on your reporting requirements. Investors or shareholders of a business may want forecasts on recurring revenues. In this case, you would create account metrics or subscription metrics and build reports based on the produced MRR and churn data. A business's directors or managers, however, may rather need a cash flow forecast – so you would create cash metrics and build reports upon them.
Why MRR, not ARR?
Producing MRR in the first place provides for more flexibility:
MRR values make up the base for further KPIs, like ARR. You can easily create a business report (or even a custom formula field on the metric object) that calculates ARR on the basis of MRR.
Furthermore, subscriptions may have terms that are less than one year. In these cases, producing ARR would just be wrong, as they would show inaccurate figures.