One of the biggest lies that people tell you as a SaaS Founders – You need a CFO after you’ve scaled. The truth is, hiring a SaaS fractional CFO can provide expertise and flexibility long before hitting the magic number of a $10M ARR, or perhaps after raising Series B. That is wrong.
In today’s SaaS world, the truth is that finance and metrics are no longer a luxury. They are a growth multiplier. According to a research by Intuit, the second biggest reason why startups fail is that they run out of cash.
It is because SaaS companies do not manage cash, pricing and metrics properly. The focus is always on growth, product features, hiring and so on. And, you don’t need to fall into the same trap.
Enter the world of a SaaS Fractional CFO. This is where a part-time SaaS expert can help you spot blind spots at the fraction of a cost.
The Silent Killers of SaaS – How a SaaS Fractional CFO Fixes Them
1. You are Flying Blind
If you are like most of the other SaaS founders, you probably know your MRR and ARR pretty well. But that is barely enough to help you stay afloat. Here are some questions that you need to think about:
- What is your CAC breakeven? How long does it take for you to recover your customer acquisition costs?
- If your churn increases by 5%, what impact does it have on your runway? Will you run out of cash faster because of this single change? What is the sensitivity of the increase in churn over your other metrics?
- How much ARR would you need to hit without doing a further capital raise?
Unfortunately, most SaaS founders think they know their numbers, until reality hits. A small churn can wipe out of your revenue growth. One big customer can topple the overall metrics, and make you run out of cash sooner.
The SaaS Fractional CFO Difference
Good CFOs just doesn’t track numbers. They turn numbers into actionable insights, and also tells the narratives behind the numbers:
– Building a 13-week cashflow to avoid surprises
– Creating a flexible, yet scalable operating model
– Identifying red flags and cash leaks
All these are way beyond a traditional accountant or a book-keeper. I call this growth engineering.
2. Your Pricing Model is Wrong
There have been many discussions on LinkedIn and other forums about getting the pricing right. Many SaaS Founders think that pricing is a simple decision – it is market driven. Price it with the market, or slightly lower, and you’re done. Wrong.
Pricing is one of the most important growth levers that you will have. Yet, I see so many SaaS companies get their pricing wrong. Some common pricing mistakes are:
- Underpricing – leaving money on the table
- Complicated pricing – with a lot of plans, and combos confusing potential buyers
- Ignoring expansion – not having a system for upselling, and cross-selling
Pricing isn’t a simple one-time decision. It has several down stream impacts on retention, LTV and so on.
The SaaS Fractional CFO Difference
A good CFO will understand the impact that pricing has on the overall firm’s strategy. By optimizing your SaaS pricing, you can:
– Analyze price sensitivity and optimize for revenue expansion
– Align and package products to maximize value
– Increase LTV through better upgrade strategies
A small pricing change can have a significant impact on the firm’s revenue.
3. Fundraising Without a Compelling Story is a Nightmare
If you are like any other SaaS founder – you have got a great product. It is solving a problem, and you have a decent traction. So, investors should throw money at you, right? Wrong
Investors don’t just fund great product. They fund great financial stories.
If your unit economics are not strong, and your spending is high, it is a clear warning sign. In the end, everything needs to make sense together. You should create a story that explains all these points.
The SaaS Fractional CFO Difference
A fractional CFO can help you prepare for fundraising by:
– Build an investor-ready financial model
– Optimize burn rate by taking an independent view of the numbers
– Position your SaaS metrics for higher valuation
A robust financial model can be the right balance between raising too much vs too little. Higher raises lead to higher dilution. Lower raises lead to a shorter runway.
The ROI of Hiring a Fractional CFO
Many SaaS founders think: “I don’t need a CFO yet, but book-keeper does a great job”
The problem with figuring it out on your own is that it costs money, or time, or both.
A full-time SaaS CFO can cost you about $250K per year (plus equity). A fractional SaaS CFO can get the same thing done at a fraction of the cost – usually between $36K-$100K per year.
So what is the ROI of hiring a good fractional CFO for SaaS companies? Well, the Fractional CFOs pay for themselves. The savings of bringing of a fractional hire, usually starts paying-off immediately.
A SaaS Fractional CFO can help:
- Extend your runway by 6-12 months through better fund management.
- Increase valuation (and reduce dilution) by optimizing your financial model.
- Improve pricing to drive revenue 20% or upwards
- Spot blindspots and prevent financial disasters even before they happen
How to Choose the Right SaaS Fractional CFO
Tell me this – if you have a tooth ache, would you go to a general practioner or a dentist? The choice is clear – a dentist. The same applies in the world of finance as well. Not all fractional CFOs understand SaaS.
Many generalist CFOs don’t understand SaaS metrics, unit economics or a recurring revenue model. Here is what to look for:
1. Deep SaaS Knowledge: A good fractional CFO should thoroughly understand SaaS metrics like NDR, GDR, LTV, and CAC. They also need to be good at modelling the impact of changes in these metrics, and translate them into a cashflow forecast. This financial model should also be robust for a fundraising strategy.
2. A Proven Track Record: Have they helped a SaaS company scale from $2M to $10M. Have you heard the Chinese Rule of 3-and -10? What this essentially means is that what works at 3, doesn’t work at 10. What works at 10, doesn’t work at 30, 100 and so on. There is a constant need for re-innovation as companies scale from different revenue milestones.
3. Ability to Work with Your Team: A good SaaS Fractional CFO doesn’t replace a good accountant or a book-keeper. In fact they work with them. They work with cross-functional teams like sales, customer success to setup key metrics for each function. This ensures that it frees up your time as a founder to focus on growth.
Final Thoughts
A good SaaS fractional CFO is one of the most important hires in your company. They are not a cost in the P&L – infact, they are a growth multiplier. If you are making decisions based on intuition and gut feelings, you are already behind.
Hiring a SaaS fractional CFO is not just a strategic move; it’s a necessity for any SaaS founder. The insights and expertise they bring can transform your finances. A well crafted financial narrative is an essential part of your fundraising journey.
Transitioning from gut-based decision-making to a data-driven approach is crucial for long-term success. The most successful SaaS companies are those that leverage data as as a part of their growth journey.
If you’re ready to scale up your SaaS business, consider partnering with a fractional CFO who specializes in SaaS. This investment can lead to significant returns, extending your runway, increasing your valuation, and ultimately driving your revenue upwards.
Take the first step towards financial clarity and growth. Contact with our experts today and unlock the potential of your SaaS business.
