7 metrics every CFO must track in 2023
Whether you’re in manufacturing or SaaS, these seven metrics will ensure all your bases are covered.
As the world changes in response to digital transformation, the pandemic and a new generation coming of age, the role of a CFO is at a crossroads. Some first principles still hold good, but the way things are done demands change. The decision about what to retain and what to change can be difficult.
In this blog post, I walk you through seven key metrics to track in 2023, serving as a guidepost to build your financial strategy.
#1 Growth vs. cost
In recessionary environments, the finance organization needs to effectively forecast growth and expenses. Tracking metrics around cost of goods sold and overheads when compared to revenue can help consistently evaluate projects for profitability, pruning those that aren’t producing returns today.
Benchmarking performance on these metrics to similar businesses can help give a clearer idea of where you’re going and what detours to make.
#2 Overheads vs. revenue
When an organization is having explosive growth, CFOs don’t care so much about overheads such as maintenance contracts, support function costs or SaaS subscriptions. However, when recession hits and money is harder to come by, overheads offer a significant opportunity in reducing costs.
A key metric around overheads is its rate of increase compared to the rate of increase of revenue. Ensure that overheads don’t increase at the same rate or higher than revenue. In fact, keeping the overhead growth rate at least less than half the revenue growth rate is a good place to be.
#3 Revenue by headcount
Headcount is one of the biggest expenses of any organization, and the costs increase year on year. Yet, headcount is not often measured in comparison to revenue. In 2023, a critical measure of success would be revenue generated per employee on payroll. Benchmarking this against industry standards will help manage human resources efficiently.
Moreover, if you can discuss the revenue per employee metric transparently with your teams, you can motivate them to be business-minded and focus on their goals.
#4 Cash conversion cycle
This is the no. of days between completing a sale and receiving cash for it. This is an indicator of the cashflow strengths of any organization. The goal is to have the cash conversion cycle as short as possible.
By extension, the idea cashflow position is when cash in is greater than cash out each month.
For SaaS organizations, net revenue retention (NRR) — i.e., percentage of revenue from existing customers — is an important metric. As cost of customer acquisition increases, NRR defines the financial stability of any organization.
As an extension of this metric, it is also good to measure customer satisfaction, customer delight etc., to predict churn.
#6 Hourly rates per employee/contractor
Hourly rate is an indication of efficiency. If your hourly rates increase year on year, production is going to cost more. Without improving efficiency, you will be left with no choice but to increase the prices to maintain profit margins.
Therefore, hourly rates per employee/contractor each month will help forecast future costs and profitability.
#7 Non-quality cost
If you produce something that doesn’t pass quality tests, you lose the whole value of the product you’ve created — this is called non-quality cost. As a CFO, you must seek to eliminate, or at least minimize non-quality costs.
This can be done by performing tests earlier, procuring better quality raw materials, collaborating effectively with internal teams, transforming processes and so on. Tracking non-quality costs is the first step to getting there.
For more on these metrics and other priorities of CFOs, watch my conversation with Siddharth Sridharan and Edward Kim.
Sign up for our blog
Optimizing SaaS Expenses is Easier with Expert Guidance
Subscribe to our blog & learn how to master optimizing your SaaS expenses.
September product round-up: SaaS procurement excellence, propelled by AI
Plan longer vacations and enjoy the little things, because your SaaS management obstacles just got vaporized.