Free Customer Success Tool - Customer Success Metric Metric: Days Sales Outstanding (DSO)

How DSO Is Calculated

The formula for DSO is:

DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days in Period

Where:

• Accounts Receivable: Total unpaid invoices at a given time.
• Total Credit Sales: Total sales made on credit during the same period.
• Number of Days: Typically 30 days for a month or 90 days for a quarter.

Why DSO Matters in SaaS and Customer Success

1. Cash Flow Health

• High DSO means delayed cash flow, which can affect your ability to invest in product development or customer support.

2. Customer Experience

• Billing issues that contribute to high DSO may frustrate customers and lead to churn.

3. Customer Success Alignment

• A lower DSO indicates smoother operations, which often correlate with better onboarding, clearer communication, and happier customers.

4. Churn Predictor

• Customers delaying payments may be disengaged or dissatisfied, signaling potential churn risks.

DSO Benchmarks for SaaS Companies

• Best-in-Class: Under 30 days.
• Industry Average: 30–45 days.
• Warning Zone: Over 45 days, as this may indicate collection issues or dissatisfied customers.

Strategies to Improve DSO in SaaS

1. Automate Billing and Payments

• Use automated invoicing tools and offer multiple payment options (credit cards, ACH, PayPal).

2. Enhance Onboarding

• Ensure customers are properly onboarded so they fully understand billing cycles and processes.

3. Improve Communication

• Send clear, detailed invoices and follow up with reminders before payment is due.

4. Implement Incentives

• Offer discounts for early payments or penalties for late payments.

5. Monitor Customer Health

• Use customer success metrics to identify accounts at risk of delayed payments and intervene proactively.

6. Simplify Contracts

• Eliminate confusing terms or overly complex billing structures that can delay payments.

DSO's Connection to Customer Success

• Customer Retention: A high DSO might indicate dissatisfaction with your product or service, prompting churn.
• Proactive Engagement: Customer success teams can collaborate with finance to address payment delays caused by poor onboarding or lack of engagement.
• Feedback Loop: Insights from delayed payments can help refine processes, such as clearer communication or simpler pricing models.

DSO Tools for SaaS Companies

• Accounting Software: QuickBooks, Xero, FreshBooks.
• Payment Platforms: Stripe, Chargebee, Zuora.
• Analytics Tools: Tableau, Looker, or custom dashboards to monitor DSO trends.

Conclusion

DSO is a financial metric as well as a reflection of customer satisfaction, operational efficiency, and overall business health. For SaaS and customer success teams, maintaining a low DSO ensures smoother cash flow, stronger customer relationships, and a better foundation for long-term growth. By addressing factors like billing clarity and proactive communication, you can turn DSO into a tool for improving the entire customer journey.