Are you benchmarking against the right things?

“If you can’t measure it, you can’t manage it.” That’s become classic management advice for a reason: Tracking business performance is a critical first step to improving it. It also aligns with a question I’m frequently asked: What are the right things to benchmark against?

Use these three sets of KPIs

But while it’s critical to present straightforward and tightly defined goals, that doesn’t mean you can get away with merely comparing your current metrics to your company’s year-ago performance. Specifically, you should track your business against three buckets of benchmarks: your business’s historical performance, the performance of similarly sized businesses, and the industry standard or best-in-class performers. Comparing your KPIs against those peer sets is a simple way to quickly identify problems and set goals for improvement.

For example, if you’re a software as a service (SaaS) business with revenues between $40 million and $90 million, you need to constantly monitor your performance against your results from the year prior, the performance of other companies in the same revenue range, and that of other SaaS companies in general.

Internally, at Adaptive Insights, the FP&A team uses our own cloud-based tools to monitor our performance. This kind of system allows executives to organize, visualize, and understand data from a variety of KPIs generated by different departments and then automatically benchmark them against historical, peer, and industry statistics.

Such a system effectively ends guesstimates about historical versus present and future performance. Instead, you can easily look up, for example, your company’s actual growth rate and instantly compare that figure to past performance, along with benchmarks from peer and industry groups.

Take advantage of automatic benchmarking

Of course, reliable KPI data about peer performance is difficult to get for SaaS companies, as many are private and do not disclose such information. Even for the ones that are public and publishing financials, many do not disclose KPIs. Accordingly, FP&A teams need an easy way to access KPI data for a peer set of private SaaS companies in order to 1) assist business owners with relevant performance benchmarks to inform the creation of their own plans and targets, and 2) to convey to their stakeholders how the company’s performance stacks up against a relevant peer set.

To help with the benchmarking side of the equation, we’ve partnered with a company called OPEXEngine, based in Waltham, MA, that collects benchmarks from both SaaS and traditional software companies. We’ve incorporated an OPEX subscription into Adaptive Insights so that you can perform all your benchmarking in one place. We made the measuring part easy, fast, and powerful—so you can spend all your energy on driving improvements.

What’s more, a cloud tool like Adaptive Insights lets clients take a major step toward effectively tracking and managing KPIs. If a KPI is higher or lower than expected, you’ll know immediately—and can course-correct before a problem spirals. Then, when it comes time to present to management, you can confidently describe the company’s precise competitive position and the future options available. In the long run, this data will also allow your company to more accurately forecast revenue, expenses, and cash flow, plus nonfinancial metrics including the cost of acquiring new customers and maintaining existing customers—critical figures to any SaaS company.

Watch the webcast, “SaaS Finance: Moving Fast and Staying Nimble.”

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