Introduction
It was a gut punch. A day after the quarter closed, we discovered we had spent an enormous amount on a single campaign that only delivered one customer over the last six months. It would take 50 years to make the money back on that single ad spend (assuming that that customer didn’t churn at renewal). Two months had passed before anyone caught the issue. But by then, the damage was done. There was a loss of faith in the entire sales and marketing strategy, doubts about whether we could still call ourselves a “data-first company,” and anger at FP&A for not catching the issue.
How did we miss this? The complicated answer: marketing funnels are time-delayed, attribution among inorganic, organic, inbound, and outbound isn’t perfect, and acquiring a couple more customers in the channel would have justified the spending. The simple answer: we failed to properly combine operational and financial metrics and neglected to establish checkpoints to mitigate this risk.
As FP&A leaders, this is exactly where we need to step up. Our job isn’t just about budgets. It’s about merging financial and operational data to identify problems before they happen. This is how you can prevent such a costly mistake:
1. Set clear internal FP&A targets
Like other teams, you need to hold your team accountable to strong results. While your success should contribute to improving ARR, there are additional metrics you should establish for your team:
$ difference in cash spend vs. forecast. This could be the most important metric. Your “cash runway” analysis is critical for assessing how far the company is from running out of money. Consistently missing cash forecasts could endanger the business.
# days to monthly reporting. This should be 1 or 2 days at most for monthly reports. The company relies on your data to make decisions. If this consistently takes a week after month-end, 25% of the company’s time is spent delaying decisions “until the data arrives” or basing actions based on incorrect data.
% Revenue target achieved. For most companies, revenue is the most important metric. Finance’s role is in setting realistic targets and providing the insights needed to achieve them.
Internal knowledge score. This is trickier. But, a quick health check would be to run random employee tests in the middle of the month. “What is ARR?” “What is our Revenue Target this quarter?” Ask random individuals.
Select the metric you find most appropriate. The key is to continuously improve and hold yourself to the same standards you expect of other teams.
2. Create and review automated reports
There’s no need to wait a month to understand your business. Set up automated management reports that email your team a weekly summary. In one email, sent Monday morning, you should have an overview of the previous week’s:
Cash spend and collections. Provide a simple list of all expenses and cash collected during the week. Put a total at the end to reflect the week’s cash burn. You will get a true sense of the business by quickly reviewing this every week.
Progress to Targets. Compare your weekly progress to your key targets, displaying the results as a percentage or a line chart over time.
Customer overview. Too often, customer data is left out of financial reports. Make sure to include an overview of your company base showing usage and health (ex. What % of customers have or haven’t reached Time to Value?)
Funnel overview. Include the top of the funnel metrics for your review to see how the company is trending in things like newsletter signups, website visits, and MQL additions.
Activities. These should include input metrics from your key systems and relevant usage data, such as calls made, customers engaged, meetings held, and platform usage (however defined).
By consistently reviewing this data, you will be able to spot trends quickly and handle problems before they escalate. Note that manually collecting this data weekly would be difficult and prone to errors, so automating this work is critical.
Tip: Always include historical numbers to contextualize the week’s performance.
3. Standardize and analyze complex data regularly
The most actionable findings occur at a level below your key metrics. For example, what are the results of each campaign you’ve invested in? Who have been the best users of your product over the last three months, and how are they using it? Unfortunately, most of these analyses are conducted ad hoc because they are time-consuming. To make sure you don’t make the same mistakes we’ve seen:
Establish the breakdown for each key metric. If it is CAC, maybe it’s a by-campaign funnel report. If it's NDR, maybe it’s a customer-cohort overview. If it's outbound sales, maybe it's a by-rep-activity conversion report.
Combine operational drivers with financial spend. Reports derive value by linking actions to the associated cost or revenue, providing insights that no one else in the company can easily access.
Ensure you track the data needed. Your systems should track data at an actionable level and allow integrations across the company. If key data cannot be captured, develop workarounds, such as tracking proxy metrics.
Spend time building out the reporting. If done well, with ease of use in mind, a standard report not only solves the FP&A deliverable but also empowers teams to act independently without needing to consult Finance.
Assign the relevant business partner to review each month. Reports are only useful if they lead to action. Relevant FP&A business partners are well-suited to this task and can action the reports with their respective teams.
By standardizing these types of complex reports, assigning clear ownership, and reviewing regularly, you will rarely be caught by surprise.
Tip: Standardizing saves significant time in the long run. You will inevitably need to revisit the same questions regularly, and it is both confusing and time-consuming to conduct the analysis differently every time.
4. Monitor risks by spending time at the water cooler
This can be more challenging in a remote setting, but it’s still important. Stay in contact with entry-level employees across the team. These are often the teammates who interact most with your customers, use the systems you’ve built, and have insights into what’s working, and what isn’t, that may be obscured in reports. Regularize:
Water cooler talk. Just chat with people, over Zoom or in-person. How are things going? What problems are they seeing? What could be going better? What are you worried about?
Systemitize coffee chats across levels. Commit to meeting weekly with a non-management team member for an informal conversation. Whether in person or virtually, focus on building rapport and creating a space where they feel comfortable sharing insights, concerns, or rumors. This is one of the quickest ways to uncover potential issues across the business.
Examine conflicts between ‘what you hear’ and ‘what the numbers say.’ If you hear about issues in the company that aren’t yet reflected in the numbers, don’t ignore them. Dig deeper to understand why this discrepancy exists. Your numbers could be missing a critical piece of the puzzle.
There isn’t much more to it. Many finance leaders isolate themselves or only engage with the management team, limiting their ability to stay attuned to the business.
In conclusion
Give your team targets, set up daily alerts, standardize complex reports, and talk to your team. This isn’t groundbreaking, but prioritizing these steps early is essential to being a strategic leader.
Once you have this set up, you will be able to add true value to the business without running from one fire to another every time a board meeting comes around.
