A SaaS company’s P&L statement covers all the financial vital signs of the company. This article goes over the components of SaaS P&L, how to set one up, and provides tips to get the most impactful insight from your P&L statement. By the end, you’ll know everything you need to take your next steps toward superior P&L management.
The P&L statement is a company’s map to profitability. It’s where you lay out the revenue that’s coming in the door and the expenses flowing out of your business. The figures found on the SaaS P&L statement also form the basic components of several important SaaS metrics, including customer acquisition cost (CAC), churn, annual recurring revenue (ARR), net burn, and more.
But P&L management at SaaS companies is notoriously difficult, especially for earlier-stage companies. Understanding what to pay attention to in your SaaS P&L statement and how to optimize it is fundamental to your ability to drive strategic insights to leaders across your org.
Table of Contents
The profit and loss statement or P&L statement (also called an income statement) tells you exactly how much money you’re making as a business. And regardless of industry, a GAAP-compliant income statement includes three main components, which are
Profit and loss influence every decision in your business, from SaaS pricing strategy to headcount planning. The SaaS P&L statement helps you determine whether to focus on a top-line vs. bottom-line growth strategy to preserve your cash runway through less spending or find more opportunities to optimize your sales and marketing engine.
And especially for VC-backed companies that operate on loss to drive rapid growth, the P&L statement is a foundational resource to answering two important questions: Can your company make it to the next round of funding in 12-18 months? And is the P&L statement putting up the kinds of numbers investors want to see when considering capital efficiency?
Learn More About P&L Management HereThe P&L statement is one of three interlinked financial statements that finance teams analyze to provide deep and valuable insights into a company’s profitability — especially when viewed in relation to each other. The other two financial statements are the following:
As a SaaS business matures, a fourth financial statement, the statement of changes in equity (or statement of retained earnings), gains importance. This is where the company tracks equity offered to employees or investors and how much the company keeps after paying out any vested options.
The SaaS P&L statement includes total revenue, expenses, and other important information. It should organize these categories by month and show each in succession so that users can see trends.
Here’s an example of a SaaS P&L statement.
All P&L statements follow the same general structure (revenue as the top line, net income as the bottom line). But every business will have its own idiosyncrasies. In a SaaS P&L statement, you’ll focus on the following terminology and categories.
Revenue refers to the money a business generates from core business operations. At SaaS companies, this generally means money received from subscriptions, tiers of product/feature access, or number of seats/users.
Revenue is the top line of the P&L statement, but it can be broken out further into net sales or net revenue, which accounts for refunds and discounts.
This is a SaaS company’s version of the cost of goods sold (COGS). The cost of revenue includes everything spent acquiring a new customer and retaining existing customers. More than customer acquisition costs, at a SaaS company, cost of revenue includes:
The remaining costs are tallied under operating expenses.
Gross profit is the amount of money left over when you subtract the cost of revenue from your company’s net revenue. Gross profit is important because you can use it to calculate your gross margin ratio.
The gross margin ratio helps you understand how much of each dollar in revenue your company keeps as gross profit. A SaaS company that keeps $.70 of every dollar has a gross profit margin ratio of 70%.
Operating expenses (OPEX) account for all the costs a business incurs via normal business operations. Every SaaS business will have its own blend of operating expenses, but the most common categories include:
The operating income represents the profit from core business operations. The operating income is generally negative at VC-backed startups due to paying any taxes or interest. It’s still important to include in your P&L statement, as it’s an important part of pitch decks for future investors to understand that the core business is profitable despite any net loss.
Net income (also net earnings) is the bottom line of the P&L statement.. It represents the profit left over after all expenses are subtracted from revenue and other sources of income, and indicates whether a business is profitable or trending toward profitability in the case of VC-backed companies.
No two P&L statements are the exactly the same. But the SaaS business model has a few special requirements to set up the P&L properly.
Bookings are any executed contract for a SaaS company‘s product or service. While not a formal part of the P&L statement, SaaS bookings are incredibly important to a SaaS business’s cash flow analysis. Adding bookings to the P&L statement or dashboard is generally a good idea as it provides a holistic picture of the company’s cash flow and helps generate important insights into future revenue.
If the company offers tiers as part of their pricing strategy, revenue should be separated into revenue streams, with monthly recurring revenue (MRR) divided from one-time sales. Recurring revenue should be further demarcated into variable and contracted amounts.
Finance teams should include everything related to selling their product or services, from personnel training to software fees to application hosting fees and more. This is where customer success and DevOps spending go as well.
There are four general categories for operating expenses: cost of revenue, research and development, sales and marketing, and general or administrative costs. When entering operating expenses into the P&L report, be sure to tag the expense with the corresponding category.
At most SaaS businesses, non-operating spend is generally incurred via interest expenses on debt, and non-operating income is earned on investments. This section exists to keep those funds separate from other expenses and income.
There’s already enough to manage, so the easier the P&L management process, the better.
The finance team’s job is to ensure the funds are there to support strategic initiatives. And the insights gained via P&L management should inform a strategy that supercharges revenue growth.
SaaS finance has its nuances, so leveraging your team’s strengths and collaborating with department leaders allows you to gain deeper knowledge, which leads to deeper insights and knowledge-sharing across the business.
While hitting the sweet spot for every SaaS KPI is ideal, that’s not how things typically work out. Executive leadership needs to understand how the nuances of their product and the company’s growth stage impact SaaS benchmarking. Guide the business in this effort with financial storytelling skills that explain the “why” behind the numbers.
In the past, finance teams relied on clunky spreadsheets to organize data. This process took days, if not weeks, meaning teams are automatically starting with stale data. To make matters worse, anyone could mistype a figure into a cell and break subtotals or formulas.
Mosaic is a Strategic Finance Platform that provides a holistic view of the company’s financial efficiency and the ability to get the most out of your P&L management. Mosaic helps finance teams optimize:
The finance team has a unique vantage point at the hub of the entire company’s data, which offers a truly holistic view of the business’s financial performance. Mosaic takes that vantage point to the next level. Schedule a demo to learn more about how Mosaic can amplify your P&L management.
