The migration to the software-as-a-service (SaaS) business model has left its mark as one of the most transformational forces in the evolution of information technology. The multitenancy and scalability of SaaS companies allows users to buy subscription plans according to their use and willingness to pay without worrying that they will reach capacity as their needs grow.
What is often overlooked is the impact this disruptive force has on the role of the finance function in a modern technology company. As the SaaS model continues to grow and its economic viability is put to the test as companies seek to balance growth with profitability, winners and losers will be separated based upon how effectively they utilize finance to empower the company’s long-term, sustained advantage.
We interviewed Sanket Mehta, Head of FP&A at NewsCred to find out more about his role in developing FP&A in a high-growth company and how finance can help SaaS companies build a sustainable business model.
Can you share a bit about your background, how you found yourself in the world of FP&A, and what role you play at NewsCred?
I actually have an undergraduate degree in computer science and started my career doing coding. I was always interested in going beyond the code to be more integrated with the business. After getting my MBA in finance and investments, I started working in finance for both startups and for large multinational corporations, which gave me insight into how companies at various points in the lifecycle have different priorities and views on the role of finance. I started at NewsCred in 2016 and was hired to shore up our finance function, including budgeting, forecasting, analyzing accounting close and reporting, and to have a seat at the strategy table as to how finance can influence leadership decisions.
What were your top priorities as you sought to grow the finance function?
At the time I joined the company, NewsCred was a startup that had just come off a large funding round, so raising capital was not as much of a concern as compared to determining where and how to allocate that capital – how long we had until we would need to raise more. The first step was to understand the organization’s strategic priorities and create a bottom-up budget to enable those priorities to succeed. We initiated a process to track key metrics that were important to the business and then developed a three-year plan. My main priority was ensuring the finance function played an active role in strategic decisions about the company’s future.
NewsCred is a rapidly growing company in the content marketing industry, an industry that is one of the fastest-growing areas in high tech, seeing a 12.4% compound annual growth rate. How do industry trends affect your role as head of FP&A?
Content marketing is a relatively new industry, experiencing high amounts of growth but still far from its potential. Because of that, our business model involves educating potential customers on the value proposition of our platform. This education process is included in our forecasted customer acquisition cost (CAC). We keep a close eye on these efforts, as we believe that the more we can get customers to see returns on their marketing spend when using our platform, the less reliant we will be on such a high level of upfront education.
In fact, we are currently exploring ways to utilize advanced analytics to not only measure financial performance but also measure returns of marketing spend that our customers achieve through the use of our platform. We can utilize this data to adjust our sales and marketing strategy and drive CAC down further.
SaaS businesses live and die by their ability to scale their customer bases and invest in the right places to control churn. How do you capture this data, extract the right metrics, and use them in future decision making?
We track typical SaaS metrics, including customer acquisition cost (CAC), customer lifetime value (LTV), annual contract value (ACV), monthly recurring revenue (MRR), and annual recurring revenue (ARR). We are currently conducting analyses and building metrics dashboards in Excel but are exploring how we can utilize technology to get more accurate and timely data. We keep a close eye on these metrics, because having timely information is extremely important to help drive pivotal business decisions. To forecast churn, we use a number of ways to look at our customer renewal list by various categories such as verticals, user adoption, zones, and many more to forecast churn based on customer segmentation. This gives us a more accurate measure of what churn looks like for us in the upcoming year.
An important part of a scaling organization like NewsCred is to plan and execute effective sales and marketing campaigns. How do you measure the effectiveness of your sales and marketing efforts, and what metrics guide your capital budgeting decisions in this area?
We use the Magic Number as a good metric to understand when we need to adjust our allocation of dollars to our sales efforts. The widely used definition of the Magic Number is:
(Current Quarter Revenue – Prior Quarter Revenue) x 4
Prior Quarter Sales and Marketing Expense
We consider the content we deliver as part of CAC, so we include this in the denominator. This gives us a rough idea of the efficiency of our sales and marketing campaigns and gives us feedback about our product–market fit. If we see this number drop, we closely examine how we can lower our CAC and how to adjust our product offering to better meet the needs of our customers.
We also do cohort analysis by customer to figure out ROI on the sales and marketing spend in a year, as we have a long customer sales cycle as compared to other SaaS companies. We can then compare and understand what channels within sales and marketing have a higher ROI compared to each other and if we need to allocate more resources to one particular channel.
As we work with our clients at MorganFranklin, we have observed that when the finance function is actively involved in the development and execution of company strategy that the organization’s collective leadership is able to make better informed decisions on the future of the business. Can you explain how this has played out at NewsCred?
This has been very true at NewsCred, where all major business decisions are made around how the particular decision will impact our financials. From hiring new talent, to assigning quotas to sales, to deciding which businesses to double down on—all decisions are made with the finance team modeling out the financial impact of these in the future months and years. This builds major confidence among decision makers and helps us to communicate to the board, as well. Typically, we will do long-range strategy plans of three years and review the forecast on a monthly basis. As a result, we always know what the risks and opportunities are to our business. We are always looking at ways to make ourselves better, and the team is involved in finding new ways to improve the forecast accuracy on a monthly basis.
NewsCred (www.newscred.com) is the global leader in enterprise content marketing. The company offers innovative technology, the largest and most diverse content offerings, and unrivaled expertise.
For more information about how MorganFranklin can assist your organization with financial reporting, visit our Technical Accounting and Financial Reporting page.