We’ve been working with SaaS companies for 4 years now. Here’s what we’ve learned
Toward the end of last year we decided to make some bold changes as a company. We decided to focus solely in the SaaS space, and only take customers in that niche going forward. We’ve serviced over 15 successful SaaS companies over the last 4 years, and even seen one grow from 3 people, up to over a 100.
As a team, we sat down and brainstormed ideas on how we can solve what we think are some of the common issues that entrepreneurs of SaaS companies face in their financial and reporting systems. One common question we’ve seen pop up from entrepreneurs entering the growth phase from the startup phase is: “How can I set up and measure department performance?” (they may be staffed by only one person at the moment, but it’s still a department 🙂
Here’s what we’ve learned over the last few years is key:
Identify what is a “Department”
This may seem easy at first, but how you break down/divide your business determines how you structure incentives, affects hiring decisions, and can significantly affect your growth. We’ve learned that minimizing the departments to 4-5 keeps things simple and efficient, and establishes accountability with managers. Here are the departments I’d recommend setting up for your SaaS.
- Customer Support (help desk, e-mail support)
- Research & Development (programmers, development resources and costs)
- General & Administrative (overhead costs, administrative salaries)
- Marketing (marketing salaries, front-facing web development costs)
- Sales (if necessary)
You may want a sales department if you have a direct sales team or representatives.
Match your Accounting System to Departments
Some of the very successful companies we work with do a great job linking their accounting system up with their departments and managers. Having the accounting system “siloed” can be extremely painful and makes your financial reporting disconnected from the rest of the company. Make sure your accounting system reflects your department structure so the financial data can feed into your department budgets easily.
Create Department Budgets
Creating a budget can seem daunting at first, but it can turn into just an hour a month to maintain if you set it up right. With Xero, you can easily report based on department and drop your actual performance right into a forecast to see how you are comparing. Each department can see if they are over/under budget and make goals for the future.
We’ve learned at our own company that we can maintain the budget and do an hour meeting each month with our customers to go over any changes that need to be made and review performance. Their participation is only needed for the hour meeting since we have all the financial data already at our fingertips and can prepare all the data beforehand.
If you have managers, we’ve found it’s important to include the managers in this monthly meeting or set up separate ones so they can see their deparment’s performance. Having that monthly check-in sticks in your manager’s minds and helps them think twice about their costs and contributions.
So what are the benefits?
One of our clients liked the insights gained so much in this monthly meeting that he blogged about it. Some of the things he mentioned I didn’t even realize he was taking away from the meeting. It aided him in making hiring decisions, cash expenditures, how much to spend on marketing, and he could easily see where all the money was going in his business. After an hour meeting, he felt empowered to go out and make some bold and important decisions.
If you are considering setting up departments, or are concerned how to take this next step, I hope this post helps you to see that a simple gameplan can make it happen.