Download your free SaaS financial model template here, and read along to learn what it can do and how to use it.
If you’re anything like the CEO of NeoReach, you understand how valuable forecasting your startup’s financial future can be; it can be the difference between confidently investing for long-term growth, and feeling like you’re fighting to survive on a week-to-week basis.
There are plenty of free templates available, but after experimenting, we decided David Skok’s model was the best combination of valuable and accessible because:
- He knows what belongs in a model – he’s founded four software companies and contributed VC funding to many more.
- His spreadsheet is completely plug and play – you can customize it as needed, but if you’d just like to model some assumptions and move on, that’s completely possible.
Keep in mind, models are only useful if their assumptions make sense.
If you’d like help calibrating a forecast to your specific business, consider our fractional CFO services. We’ve worked with hundreds of startups and, with the benefit of our experience, can guide you toward industry-standard benchmarks for your business.
Video Walkthrough
Who Does This Model Apply to, and What Can it Do?
This model is tailored for a SaaS startup hiring a sales team. However, if your company has a touchless sales model, you can still make use of the spreadsheet. Mark “zero” for salesperson compensation while inputting monthly overhead in cell B12.
When we’re finished, you’ll be able to model a variety of assumptions while answering the following questions:
- How long does it take to break even?
- How much cash do I need to survive that long?
- How much profit can I make afterward?
The model can also get quite granular, helping you visualize a variety of useful data, including:
- How monthly revenue accumulates over time
- Marketing investment required to generate sufficient lead flow
- Churn
- Customer acquisition costs and lifetime value
And more.
How to Use the Model
All input cells are marked in orange. Make your assumptions, and the model will autopopulate the following sections:
- How does hiring a single salesperson look?
- What happens if you hire multiple salespeople?
- What happens if you collect payment up front?
- Compares two hiring rates (second tab).
- Compares two churn rates (third tab).
Data Inputs: Example
These assumptions will be pre-populated in your copy of the template. We’ve briefly noted our justifications for the assumptions, but your specific circumstances will likely call for considerably different inputs.
| Data | Our Assumption | Notes |
| Annual Contract Value | $6,000 | Your organization may vary, but a $500/mo subscription is a large enough price point to justify the inclusion of a salesforce. |
| Salesperson Salary | $50,000 | A $50k base is a reasonable salesman’s salary for a funded startup. |
| Annual Commission | $55,000 | $55k commission potential leaves plenty of opportunity for your startup to succeed while properly incentivizing your salesforce. |
| Annual Overhead | $30,000 | First-year SaaS startups can cost as much as $500,000, or as little as zero. It all depends on your product’s complexity, what you choose to outsource, and how much money you’re willing to risk. We chose $30,000 as a low-end benchmark. |
| Annual Bookings Quota | $500,000 | This is set as a multiple of a salesperson’s annual compensation (we chose 5x). Organizations with less-developed lead generation processes commonly set quotas at 4x compensation, while those who have perfected their process can go as high as 10-12x. |
| Monthly Churn | 2.5% | SaaS Capital surveyed 1000 companies and found annual churn varied between 5-11%. We’re using a high-end estimate, but your results may vary. |
| Cost of Website Visitors | $0.75/each | This can vary considerably. For instance, “best CRM for SaaS startups” costs $13 per click on Google. We’ve chosen a reasonable estimate, but your marketing strategy will influence this figure considerably. |
| Visitors Who Convert to Leads | 3% | Most website visitors aren’t ready to engage right away, and a 3% benchmark is a realistic starting point. |
| Percent of Leads That Convert to Qualified Leads | 20% | Not every lead is a fit for your organization. Maybe they’re not ready to buy, or can’t afford your product; as a result, some leads will fall out during discovery. |
| Number of Qualified Leads Required to Close a Deal | 10 | With high annual contract value, sales cycles are long and involve multiple stakeholders. |
| Estimated Gross Margin | 80% | Early-stage SaaS companies, with less-efficient operations and lead-gen strategies, may have margins closer to 50%, while established organizations are closer to 80%. |
Data Outputs: Example
While we walk through outputs using the above assumptions, we’ll also call out specific rows and cells to help orient you to the spreadsheet.
All graphics in this section have titles matching charts from your template.
How Does MMR Stack Over Time?
Notice how, as you accumulate customers, the profitability of your SaaS product compounds over time. During the first month, while your salesperson was in training, they hardly sold anything at all (cell B45). But by the end of month 12, their efforts are earning $30,931 monthly revenue (cell M45).
How Long Until We Turn a Profit With a Single Salesperson?
The challenge for SaaS founders is, despite compounding MRR, it takes time for up-front investments to turn a profit.
In our example, we’re spending almost $20,000 a month between a salesperson’s salary, marketing to generate leads, and overhead costs (row 55 sums all costs); it takes eight months before MRR (i45) exceeds monthly costs (i55).
Month nine marks our lowest point; we must invest $78,302 before generating our first monthly profit. From here, it takes until month 19 to break even, but by month 36, we’ve netted $486,083 profit.
Long-term Impact of Churn
Annual churn varies between 5-11%, according to a survey of ~1000 companies conducted by SaaS Capital. Our model began with a conservative assumption (2.5%), but what if we bring our company in line with industry standards (1%)?
As you can see, churn isn’t impactful in the short term: the lowest points and breakeven time are virtually unchanged. However, over the course of three years, we increased our net profit by over $256,496 by reducing churn to 1%.
What Happens If We Collect a Year’s Payment in Advance?
SaaS companies commonly face cash flow issues. Remaining solvent long enough to reap the rewards of compounding MRR isn’t easy.
However, if you can persuade customers to pay in advance, you eliminate your cash flow problems altogether.
When we collect monthly payments, our break-even point occurs in month 19, which is also when we turn our cash flow positive. But by collecting annual payments, we’re always cash flow positive. And even better, our cash flows increase considerably during month 13 when our annual subscribers renew.
Please note, under GAAP-compliant accrual accounting rules, we can’t recognize revenue until we’ve delivered the service. So even though we collect payment up front, our net profit isn’t fully realized until the end of the contract term.
What Does the Model Teach Us?
- Given a set of assumptions, how much up-front investment do we need, and how long will it take to break even? To calculate the minimum up-front investment you may need, track left to right on row 60 and look for the month cumulative net profit reaches its lowest point. In your base spreadsheet, this happens during month 9 in cell J60.
- How profitable can your SaaS product be over time?
- Collecting up-front annual payments is crucial for maintaining cash flow. After a client makes a purchase decision, present a discounted annual payment option as a value-added offer; many clients will accept. If you operate a touchless sales model, be sure to include a discounted annual option on your checkout page.
- Churn has considerable impact on long-term profitability. To lower churn, consider developing upsells and cross-sells to increase customer lifetime value while incorporating customer feedback into your product’s development. Additionally, high-ticket contracts have considerably lower churn rates than low-ticket products, the SaaS Capital survey of 1000 companies reports.
- Product-market fit and a scalable sales process can’t be assumed. The best way to use the model is to develop conservative, neutral, and optimistic projections, and to adjust assumptions as your business progresses.
How Indinero Can Help
A model is only as useful as your inputs. Our fractional CFOs have worked with hundreds of companies and startups; we can help calibrate your forecast using industry benchmarks tailored to your stage, strategy, and sector.
When the time is right, reach out for a free consultation.
