How CFOs Use Metrics to Connect the Business Across the Macro-to-Micro Continuum

Editor's note:Ross Tennenbaum is the Chief Financial Officer at Avalara. The opinions expressed in this article are solely those of the author.

For any recurring revenue business, net revenue retention (NRR) is a critical metric. However, to improve NRR performance, financial leaders must delve into business operations and adjust what I call "micro-metrics"—the more specific performance measures that influence macro metrics like revenue.

Whether it's annual recurring revenue, net promoter score, or customer lifetime value, any effective improvement in macro metrics depends on identifying the underlying drivers and making adjustments at the micro level. This is what I call the "macro-to-micro continuum," which provides a clear roadmap for improving macro metrics through micro changes.

For CFOs, setting, advancing, and achieving metrics is the cornerstone of business health and success. From bookings to NRR, many key metrics are often monitored and reported after the fact. While macro metrics are crucial, CFOs should span the entire continuum and focus on the micro metrics that drive macro outcomes.

The concept of the macro-micro continuum is not complex: it requires breaking down the results presented at board meetings or earnings calls into specific actions that teams can execute daily, thereby consistently driving better performance.

By deconstructing the drivers of key metrics, CFOs can collaborate with other business leaders to continuously address issues and opportunities, ultimately helping the company achieve maximum results in the most efficient way.

Consider a company as a human body: at the macro level, we can measure key indicators such as weight or speed. But when you descend from the macro perspective to the micro level, you traverse complex systems and organs, ultimately reaching the cellular level. The final output level a human body can achieve depends on how these fundamental units perform their functions and collaborate with each other.

So, how can CFOs apply the macro-micro continuum to their own metrics and organizations? Net revenue retention is a great example.

For most SaaS companies, NRR is a key indicator of the health and growth of existing customer business. At the highest level, NRR reflects the positive or negative growth of existing customer accounts, but the final number is determined by multiple drivers. On the positive side, growth in existing customers may stem from customer expansion or purchasing additional solutions; on the negative side, downgrades, concessions, and customer churn all impact NRR.

Setting Driver Targets

Applying the macro-micro continuum to improve NRR begins with setting targets for these specific drivers and clarifying which teams can achieve the best operational results around each factor.

For example, if a CFO finds that customer downgrades are significantly dragging down NRR, they can collaborate with the customer success team and product management to identify the scenarios where customers most frequently downgrade, and then each team can clarify the areas they need to focus on.

Although this process seems simple in concept, CFOs should still be wary of several potential pitfalls when implementing the continuum:

• Address data limitations early.Before breaking down metrics and planning business priorities, it is essential to ensure a complete and reliable data foundation. This requires solid data hygiene and governance; otherwise, teams may work with incomplete or inaccurate data. Additionally, teams should regularly review data to track progress.
• Start small and keep it simple.Rather than trying to address all reported metrics at once, focus on a few key metrics so that teams can concentrate on solving the most impactful issues.
• Maintain consistency.When the process fails, teams can easily become discouraged or complacent. CFOs have the responsibility to keep the project moving forward and to continuously reinforce how each employee's efforts contribute to the overall goal.

Ultimately, the results CFOs report are driven by the work of the entire company. By adopting the macro-micro continuum, CFOs can help business leaders improve performance and use financial metrics as a tool to foster cross-departmental collaboration and alignment.