Effective SaaS FinOps KPIs:

Having spent 25+ years working across organizations of all sizes, from early stage startups, to robust and mature enterprise, I've developed a model on key performance indicators for Tech Ops that impact financial efficiency.

Briefly, each of these KPIs need to be well measured, and form the basis for effective forward looking projections. Each KPIs can is a component, with relationship to the others.

The five golden signals for SaaS organizations, based upon many years of experience are Cost, Capacity, Consumption, Compliance, and Customer Health.

Cost - the net amortized cost including labor, operational expenses, and capitalizable expenses. Labor is a critical component, and tracking activities with clear delineation between capitalizable labor expenses vs operational expenses, and tracking to that, is often missed. Great firms put a heavy emphasis on turning metrics, incidents, and operational management into capitalizable labor expenses engineering improvements across their environment. More on this in a separate blog post.

Capacity - What is the unit of deliverable capacity as consumed by customers, what is the cost for that capacity, and guidance the unit of increment (and costs) to increase capacity. There is a vast world of difference in cost and delivery of new capacity when using private datacenters and owned equipment vs public cloud services. Capacity needs to include both scale-up and scale-down modeling.

Consumption - One of the most critical aspects for SaaS providers is the ability to monitor, measure, and predict consumption patterns for customers. This modeling informs capacity as well as cost. The most successful SaaS vendors providing a rich set of capabilities builds atop their consumption model to extend to enable customers to support their consumption, and further, ties fees to customers pay based upon their consumption.

Compliance - Regulatory compliance plays a critical role in planning capacity. With the rapid growth of regional privacy and data sovereignty requirements have a significant impact on distribution of resources, business continuity planning, and cost. Public cloud vendors (and even private datacenters) costs can vary significantly by target deployment region. Regional expansion is also impacts capacity planning, and understanding what the minimal footprint to expand into a region will cost.

Customer Health - This is a composite metric that integrates cost, capacity, and consumption. As a baseline, SLIs/SLOs/SLAs are critical to capture, document and to measure, both internally for services, and for customer action. Customer health is informed by consumption and cost (to generate profitability reports). Capacity planning and consumptive behaviors are tightly coupled to customer health. Many early stage startups over provision their capacity, which drives up cost to exceed SLAs. Often, effective capacity planning is understanding how to tightly align it to consumption to meet, reliably, customer SLAs without incurring excess waste. Customer Health is also informed by customer support requests and complaints.

But these are not easy KPIs to manage. Delivery of these KPIs is a challenge. The data sources required are incredibly diverse, often overly emissive (30TBs for a months Cost and Usage Report from AWS can be a challenge). Establishing these metrics, though, are absolutely critical to effective FinOps management for SaaS vendors.

We will data sources, tooling, and analysis to manifest each of these KPIs. in future installments