If you’ve ever felt like you go through feast or famine cycles, you’re not alone. Many SaaS businesses experience cash flow fluctuations throughout the year.
In this article, we’ll provide actionable steps you can take to better account for seasonality in your forecasts.
Once you understand the process, the hardest part will be gathering quality data. If you’d like help with industry benchmarking, indinero has worked with hundreds of businesses across every industry you can think of.
Check our reviews on Clutch, and when the time is right, reach out for a free consultation.
Key Takeaways
- Identify trends by gathering 2-3 years of your personal business’s data. If that isn’t an option, look for industry benchmarks, peers, and strategic advisors to inform your model.
- Create baseline, conservative, and optimistic projections.
- Plan for both best and worst-case scenarios.
- Download our free SaaS financial modeling template for a plug-and-play linear forecasting model you can customize to account for seasonality.
What Is Seasonality?
Unlike standard linear forecasts that assume steady growth on average monthly figures, accounting for seasonality incorporates swings in revenue and resource needs based on predictable recurring patterns.
Examples include:
- Educational software: Spikes during back-to-school periods
- Tax or accounting services: Peak usage during Q1 tax season
- Retail solutions: Holiday season surges
- Tourism or hospitality tools: Summer or holiday travel peaks
- B2B applications: Sales lull while employees take summer vacation
The Risks of Ignoring Seasonal Forecasting
Skipping seasonal forecasting exposes your business to a range of avoidable risks that can quietly erode profitability, stress operations, and stall growth.
The most immediate possibility is mismanaging cash flow.
Imagine a SaaS startup that estimates a 12-month runway based on average revenues. But if revenue dips by 50% over the summer, that timeline might quietly shrink to just eight or nine months, and by the time you notice, it may be too late to act.
Similarly, it’s possible to mis-time investments and fail to capitalize on peak seasons.
For instance, a software solution serving retailers should invest in marketing and salespeople well in advance of the holiday rush. Without accounting for seasonality, they might find themselves scrambling for help at the worst possible time or delivering subpar service that hurts their reputation.
How to Adjust Cash Flow Projections to Account for Seasonality
Instead of using a simple average burn rate, use a forward-looking approach that accounts for known seasonal fluctuations:
- Map expected revenue by month based on historical patterns
- Project expenses for each month
- Calculate your cumulative cash position month by month
- Identify when cash reaches zero
But what if you don’t have much data to work with?
Use external sources for inspiration: Industry reports, market research, or even advice from mentors and peers can fill gaps.
Quality Data Is Crucial
A projection is only as good as its inputs. If you don’t have a system for documenting and categorizing cash flow that doesn’t take too much time, now may be the moment to create one.
Read our article on tracking business expenses for a primer on the fundamentals. But for starters, you should:
- Segregate all business and personal expenses into separate accounts
- Integrate software with business accounts that automatically log and categorize cash flows
- Periodically review
Navigating Uncertainty
Even the best forecasts can’t predict everything. Sudden macroeconomic shifts, viral trends, or global events can throw off even well-established seasonal patterns. However, by building flexibility and contingency plans into your model, you can prepare for the unknown.
To begin, don’t rely on just one projection. Instead, create baseline, optimistic, and conservative forecasts that inform your strategic decision-making.
Next, avoid nasty surprises by building buffers into your models. That could mean assuming higher costs than your “best guess” says you’ll need, or forecasting revenue with a degree of pessimism.
Finally, do your best to keep an eye on outside factors that may influence your business. Proactive planning is better than reactivity.
When you’re done, you should be able to answer questions like:
- “What happens if our peak sales are 20% lower than expected?”
- “If we have 20% more sales than expected, do we have enough staff to handle demand?”
- “Can we make it until peak season if one of our investors backs out?”
Turning Forecasts Into Strategic Decisions
Now that you have a forecast, what can you do with it?
Forecasting provides a schedule for decision-making. If sales are expected to spike in two quarters, you can start hiring, outsourcing, or upgrading systems before pressure hits.
A well-timed marketing dollar goes further when customers are actively looking to buy, while off-peak periods are better suited for low-cost engagement or retention strategies.
Conversely, a model that predicts a dip in August might prompt you to secure credit or cut costs to ensure your organization can last through your slow months.
Most importantly, accounting for seasonality gives you a clear view of risk and opportunity. If a dip in high season threatens your margins, you can plan backup channels or intensify your outreach. And when you’re flush with cash in the busy months, you can make plans to get through the slow season ahead.
Avoiding Common Pitfalls
Seasonal forecasting can deliver significant benefits, but there are common pitfalls to be aware of. Avoid these to keep your models both realistic and useful.
- Relying on averages: Simple averages can create a false sense of consistency. Few businesses actually experience a “normal” month every month.
- Using dirty or insufficient data: Forecasts are only as good as the data feeding them. If you have missing data, rely on one-off events, or don’t account for changes in how you record metrics, you risk making strategic decisions with faulty assumptions.
- Not revisiting the forecast: Don’t stubbornly stick to a projection that is proving wrong. The value of a model is in prompting you to respond to new information.
- Ignoring the expense side: Projecting revenue is considerably more fun than costs. However, if your plan doesn’t account for when to ramp up or down, you may be overly optimistic about profitability or runway.
- Lack of contingency plans: Always mentally walk through the questions: “If things are worse than this, what will I cut? If things are better, what will I do with the excess?” Proactivity goes a long way.
Tools and Resources for Seasonal Forecasting
Programs like Excel and Google Sheets are great for handling seasonal forecasts.
Develop your own model by downloading our free SaaS cash flow template. The base model was created by David Skok, a SaaS founder who has taken three companies public, and can be customized to account for seasonality.
For advanced help, consider enlisting a strategic advisor. We’ve worked with hundreds of companies and would be delighted to handle the numbers while you focus on growth.
Contact us for a free consultation today.
