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FP&A in SaaS looks a little different than it does in other business models. Here’s how you can partner with engineering to promote good company outcomes.
The job of a financial planning and analysis (FP&A) professional is to oversee the building of financial models, track budgets, and partner with stakeholders across their organization to make better decisions.
For FP&A professionals in charge of partnering with engineering and product organizations, this means understanding how investments in innovation, from software purchases to headcount, are driving business outcomes. Like any team in an organization, this comes with its own unique set of challenges.
Much of what engineering teams purchase is on demand. Software can be bought in minutes, often with free trials and per-user pricing, and cloud resources can be spun up in an instant. All day, every day, engineers are ordering what they need off a menu with no pricing, while finance gets the bill.
However, with the right process and communication, finance teams can partner with engineering and product organizations to ensure costs stay under control. But, it’s a careful balance. On one hand, finance should do what they can to minimize excess costs and waste. On the other, it’s in the best interest of the business to let engineering move fast.
Here are a few tips to strike that balance and successfully partner with engineering.
Use the following tips to open communication with engineering and keep the whole team aligned toward the same company-wide goals.
In some companies, engineers view the finance department primarily as a source of constraints.
Finance tells engineering what they can and cannot spend, and then retroactively let engineering know whether they adequately adhered to the budget. This approach helps no one and provides very little foundation for future improvement.
Instead, focus on proactively solving problems and facilitating open communication.
Engineering leads go into every new project, and sometimes every new quarter, with a road map that will guide development for the whole team. You, as the FP&A partner, can facilitate that process by making sure product and engineering has all the context and relevant information they need to make a plan that will further the goals of the company.
For instance, if the company will be selling a particular product or feature at a low price as a loss-leader for another product, make sure engineering is aware of any cost constraints they need to follow to make the financial model work. That way, they can incorporate those constraints into their planning and development.
Similarly, they should know if the feature they are developing will be a standalone release or whether it will be packaged alongside another product that already exists. How the feature is priced and packaged could dramatically impact how engineering designs and builds the project.
Additionally, be as transparent as you can about what goals you need engineering to hit, and why.
For example, say the C-suite has a goal to grow the company three-fold over the next year while improving profit margins. In order to reach that goal, engineering needs to hit X, Y, and Z checkpoints. This information provides far more motivation and assistance than simply setting a hard budget limit without any explanation, so it’s the job of FP&A to help engineering leaders understand the goals of the business.
Financial planning in SaaS companies requires an in-depth understanding of the technical aspects that influence the company’s success.
Since the lead engineer’s product road map will be such a huge factor in the direction the team takes on any given project, you as an FP&A director need to be able to understand what they’re talking about.
The better you understand how the engineering department works, how they like to structure their projects, their needs and requirements for success, and the development process in general, the better you will be able to determine which costs are necessary, how they might change over time, and where it might be appropriate to consider cutting back.
To illustrate, let’s say engineering starts on a new project with a budget and a goal to deliver a new product — but are given no updates on budget until the end of the month.
When they almost inevitably go over budget, they’ll have to decide between reworking the design they’ve already created or just accepting the cost.
In addition to collaborating with engineering and providing context at the beginning of a project, as we’ve already discussed, you’ll want to make sure they have feedback and guidance along the way.
If your engineers have relevant visibility into the costs of their actions and can see how each purchase contributes toward the budget and financial goals they have been given, they will be able to make efficient decisions in the moment rather than having to retroactively address the issue.
CloudZero Budgets can help you accomplish this goal by providing continuously updating feedback about how your spending is tracking against your budget goals for a specific time period.
Say you’ve set a hard limit on spending every quarter; you can log in every day or every week to see how the engineering team is doing at keeping to that budget. If they are significantly ahead of where they need to be, and it’s only a few weeks into the quarter, you can have that conversation now instead of waiting for the unpleasant surprise at the end of the term.
Importantly, every engineering team member should also be able to see how their design and infrastructure choices move the total spend closer to or further away from the quarterly goal posts. It’s a lot easier to make cost-effective choices when each person can see the results of those choices in close to real-time. This brings us to the next tip.
Again, the emphasis here is on early.
Each engineering team member needs to understand that sometimes they will go over budget, and that’s okay — as long as they bring it to your attention right after it happens.
This opens a dialogue between finance and engineering where both departments can look at the company goals again and decide whether it’s more important to prioritize a particular engineering solution (even if it costs a little bit more), or whether it’s better to cut costs in this instance and stay below the budget limit.
Unit costs are the key to effectively managing cloud spend. Without visibility into your costs per customer, per feature, per demographic segment, and other relevant metrics, how can you be expected to optimize your spending?
Itemizing costs down to the smallest units possible makes it far easier to build forecasts and models than it would be if you were stuck with a few total cost numbers and no context as to why the company reached that level of spend. Visible unit costs also help engineers make the best decisions and track their own contributions toward a total budget.
CloudZero gives you the visibility you need to break your costs down into smaller, trackable segments, so you can see exactly when, where, and why your spending happened. Track your expenses automatically, and then view your spending in real time to determine if your teams are on track toward reaching your designated budget.
Cody Slingerland, a FinOps certified practitioner, is an avid content creator with over 10 years of experience creating content for SaaS and technology companies. Cody collaborates with internal team members and subject matter experts to create expert-written content on the CloudZero blog.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.