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The Ultimate Guide to SaaS FinOps
Navigating the world of SaaS FinOps can feel like you’re walking a tightrope. While juggling chain saws and bowling balls. Over a tank of starving great white sharks.
What’s ironic is that you are under this pressure during what should be the most exciting time. Your SaaS is growing, scaling, and it might even be nearly time for the next investment round.
It’s only natural to feel apprehension and overwhelm.
And you might have these questions running around in your mind:
- How can we switch from loss-making to profitability fast?
- How can we stay on top of revenue recognition and forecasting when the SaaS landscape constantly shifts?
- Where do I find the time to prepare for financial and regulatory audits and ensure compliance?
- What do we do to stop haemorrhaging costs?
- How can we align FinOps with the company’s big-picture vision?
The FinOps team is expected to course-correct the entire financial model of the SaaS business. It’s like trying to stop and turn around the Titanic with just an ice cream scoop.
We’re a SaaS company that works with SaaS companies. We get that there’s a lot to this. But the more SaaS people know about how to get rid of FinOps headaches, the sooner they can action best practices and make their SaaS company undeniably irresistible to investors.
That’s why we’ve created this comprehensive guide to SaaS FinOps. In it, we’ll chat about the ins and outs of FinOps, the challenges FinOps teams face, the best practices to help turn things around, and the easiest way to get that done.
So, grab a cup of coffee, sit back, and let’s dive right in.
SaaS FinOps Responsibilities and Challenges: It’s a Wild World Out There
Let’s look a little more in-depth at what’s expected from FinOps and the challenges they must work through while they align the company’s financial situation with the vision for the brand:
- Switching from loss to profit-making: SaaS companies start at a loss and continue with loss-making while they’re investing in product development and customer acquisition. But over the last year or two investments have dropped so FinOps are expected to become profitable much faster and earlier.
- Indirect responsibility for billing and subscriptions: Though much of the billing and subscription responsibilities are up to RevOps, FinOps has to fold that customer base and low operational costs into a solid bottom line. The problem is that silos can separate the teams so FinOps operates from a lack of knowledge and data.
- Nailing revenue recognition, forecasting, and reporting: Recognizing revenue is vexing and without the right tools it’s easy to make mistakes. Despite this, FinOps must match the actual usage of the service while somehow making accurate forecasts and reports to guide decision-making.
- Taming the cloud cost beast: When an SaaS scales (especially drastically), cloud costs can go through the roof. That means FinOps MUST keep a real-time eye on cloud usage, find and solve inefficiencies, and optimize costs if they have any hope of bringing in profitability.
- Staying compliant with regulations and standards and managing risk: Though risk seeps through the pores of the SaaS industry, FinOps still has to cut it down. Compliance with evolving financial regulations across regions can be a nightmare because it consumes a huge amount of SaaS FinOps time. After all, mistakes are not only costly, but they can be deadly to the brand.
- Managing cash flow and working capital: Cash is king in the world of SaaS. To survive, FinOps must cut the cash burn rate to the bone, stay liquid, take charge of capital budgeting, negotiate like a kid who has to get ready for bed, and grab every opportunity for growth.
- Adapting to rapid changes in the market: FinOps teams must make data-driven decisions to keep up in an evolving market. They need good data and analysis, KPIs, knowledge of customers, trends and forecasts, tech, best practices, and know-how to pivot fast.
How FinOps doesn’t survive on ulcer medication is a mystery greater than the building of the pyramids.
And they have to do all these things with another ultimate goal in mind- they must make the SaaS company an investor magnet throughout the investment cycle.
The Investment Cycle
Seed Round: In the initial seed round, FinOps teams need to present a compelling business plan and demonstrate the market potential of their product or service. They should highlight the company’s unique value proposition, target customer segments, and revenue model, as well as provide a roadmap for growth.
Series A: During the Series A round, FinOps teams must present a more detailed financial picture, including historical performance, current financial health, and future projections. They should also provide evidence of traction, such as growing user base, increasing revenues, and strong customer retention rates.
Series B and beyond: As the company progresses through subsequent funding rounds, the FinOps team’s role becomes even more critical. They need to showcase continued growth, profitability, and scalability while addressing any potential risks and challenges. This includes providing detailed financial statements, demonstrating cost optimization strategies, and highlighting successful partnerships or acquisitions.
Who Does What – the FinOps team
The best FinOps team are a diverse mix of people with a good range of experience. Though it depends on resources and budgets, these are the roles most often seen:
1) SaaS FinOps Business Manager: They step up to take charge of cloud finance, use and infrastructure, making sure everything runs smoothly and efficiently while keeping costs in check.
2) Project Manager: They keep all the moving parts on track, juggling goals, tasks, and expectations like the boss that they are. They’re great at communication and bring everyone together to get the job done.
3) Tech Manager: They’re the wizards behind the curtain, making sure all the tech runs well and supports the company’s objectives.
4) Financial Analyst: The numbers cruncher analyzes financial data, identifies trends, and provides insights to help the company make informed decisions. They create financial models, forecast revenue, and track key performance indicators (KPIs).
5) Compliance and Risk Management Experts: They navigate the complex and constantly-evolving regulatory landscape, find those potential risks, and implement strategies to tackle them.
No matter how great this team is in terms of talent and ability, if they don’t have the right tools, it will be hard for them to do their jobs.
And that can lead to some difficult problems that can really hold them back.
Your SaaS FinOps team might have already experienced some of them.
What happens without the right tools?
There’s no way a FinOps team can manage expectations without help. In this day and age, it just can’t happen.
But what can happen is a lot of fallout.
1) Failing to Align Financial Goals with Business Objectives:
There might be a lack of communication. Or the need to pivot FAST. Or maybe, FinOps has been so busy in damage control mode that it hasn’t been able to think about the future vision.
Whatever the reason, when there’s a misalignment, the financial plans don’t support the big picture. It means misallocating resources, creating inefficiencies, missing opportunities for growth, and financial outlay for a potentially massive course-correction.
2) Unable to Make Data-Driven Decisions:
Everyone knows how valuable data is – especially in SaaS. It lays a great foundation for insights that can power impactful decisions. But if FinOps can’t tap into its power, they’re left with guesswork.
And that means decisions that can actually harm growth and set the company back. Not only could the company become less competitive, but their costs could go through the roof.
3) Inadequate Focus on Cost Optimization:
No one needs the stress of their hard-earned profits eaten up by unnecessary expenses. FinOps must stay on top of cost optimization, especially cloud infrastructure.
If they can’t, they face bloated expenses, reduced (or no) profitability, and even layoffs to compensate for the financial strain. None of these strengthen confidence in the team.
4) Poor Communication and Collaboration:
Ever felt like you’re speaking a different language from your colleagues? That’s what happens when there’s a lack of communication between FinOps teams and other departments. To avoid misunderstandings and inefficiencies, they need to actively engage with others, share insights, and create a culture of collaboration.
When communication breaks down, it can lead to delays in projects, duplicated efforts, and missed opportunities for innovation. For example, if the development team isn’t aware of budget constraints, they might spend time building features that ultimately get cut due to cost concerns.
5) Resistance to Change and Innovation:
In the SaaS race, FinOps teams can’t afford to get left behind. If they don’t change, try new strategies, or invest in learning, they’ll struggle to keep up with the competition and industry advancements.
This resistance leads to stagnation. Pricing models aren’t explored. Emerging trends aren’t leveraged. And then comes the decline in market share. iThe company simply becomes obsolete because customers simply go to a competitor who has got their stuff together.
All this damage and unnecessary stress is exactly why FinOps need to be given the resources that are required to do their jobs.
It’s no exaggeration that when FinOps are under-resourced, it literally can kill the company. Because they become uninvestable.
So what’s the best way to take these potential pitfalls head-on?
How can you as a FinOp team make a significant impact on your company’s organization’s success and drive sustainable growth?
There’s one solution that works. Automation: Your Secret Weapon for SaaS FinOps Success
Automation is the game-changer FinOps teams have been waiting for.
It holds the key to overcoming many of the challenges they face and unlocking growth, profitability, and investibility.
Here are some of the revolutionary changes that automation brings, FAST:
- Automating billing, invoicing, and revenue recognition: Automation cuts down on manual errors, saves time, and makes that customers are billed accurately. This reduced churn not only builds the customer base, but helps FinOps with reports and forecasting and frees up cash for FinOps growth initiatives.
- Real-time cost tracking and optimization: Automation helps FinOps teams monitor cloud usage and all costs in real-time. Inefficiencies aren’t missed anymore. Cost-saving measures can be implemented more quickly.
- Streamlining financial reporting and compliance: Automating accurate financial reporting and compliance tasks saves FinOps teams a lot of time. They avoid the errors that SaaS companies cannot afford in compliance and financial information.
- Boosting collaboration and communication: Who is ready to smash silos? Automation streamlines communication and collaboration between FinOps teams and other departments. Boom- more cohesion. Better ideas.
- Enhancing customer success and retention: Customer success processes including onboarding, support, and upselling are turned around. Maximized CLV drives revenue growth and frees up resources that can be invested in new customer acquisition.
- Automating budgeting and forecasting: Automation allows FinOps to streamline budgeting and forecasting. There’s less manual effort and more accuracy, which means better decision-making and agility.
- Improving data analysis and insights: With automation, FinOps teams can collect, analyze, and visualize large volumes of financial data. This gives insights that power strategic decisions and drive growth.
All of these benefits make the company more investible. They also cut down on FinOps’ ulcer medication.
So once the tools are in place and FinOps has the resources and supports that it needs, what the best practices that can put it miles ahead of the competition?
What needs to be done to keep finances smooth and attract investors?
Maximize Your FinOps Operations: Best Practices
Here are some of the most impactful FinOps best practices:
- Get your hands on cost management best practices: The latest cost management techniques and tools can give you creative and cutting-edge solutions to problems.
- Leverage data-driven insights: Data drives the best decisions. This involves using analytics tools to track KPIs, identify trends, and uncover opportunities for growth.
- Streamline financial processes and workflows: There are ways to streamline the processes and workflows, especially the ones that are never-ending time and resource vacuums.
- Collaborate effectively with other departments: Other departments like RevOps and DevOps want to collaborate to create unstoppable strategies. The more collaboration, the more other teams help share the burden. They’re there to help you succeed with regular meetings, sharing insights, and fostering a culture of collaboration.
- Invest in continuous learning and development: Staying up-to-date with the latest trends, technologies, and best practices will help keep a SaaS competitive in the long-term. The more self-investment, professional development, attending industry events, and participating in relevant online communities and forums, the better the foothold in the SaaS landscape.
- Embrace a culture of experimentation and innovation: Trying new approaches, testing different strategies, and learning from successes and failures are necessary to stay ahead. Experimentation leads to the sharpest innovations. Disruption lay at the heart of all of it. Challenge the status quo.
The SaaS landscape is only going to get more crowded and competitive as time goes on.
And until there’s a change in economic volatility and instability, investments are going to be harder to get.
That’s why FinOps deserve all the resources that they need to get things done. They play a pivotal role in driving growth, profitability, and investibility.
By understanding the challenges faced by FinOps teams, embracing best practices, and harnessing the power of automation, SaaS leaders can unlock new avenues for success and secure their place at the forefront of the industry.
Which is exactly where they belong.
SaaS discounting lowers customer LTV by 30%.
-Paddle
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