SaaS Financial Modeling Services
SaaS financial modeling is one of the key tools every SaaS business needs to utilize. SaaS businesses are unique. They operate on a different set of metrics and strategy. That is why you need to capture operating data and convert that data into insightful SaaS analysis and financial projections to react to changing business conditions or implement a modified strategy. SaaS and subscription software businesses are unique in that their financial measurements and key performance indicators (KPIs) are different from traditional businesses that measure performance based on product costs, work-in-process, inventory costs, inventory turns, etc. We know key SaaS performance metrics focus on MRR (new, churned, and expansion), Churn metrics, Unit economics (LTV, CAC, ratio analysis, months to recover CAC), Cash Flow, Funnel Metrics, Sales Metrics, as well as the traditional EBITDA. SaaS financial modeling is one of the most effective tools an emerging SaaS business can employ because it provides you with “operating analysis,” not just data, about the health of your business.
Why do businesses need SaaS Financial Modeling?
SaaS businesses are complex. They exist in a fast-paced, dynamic world where capturing market share and growth is the difference between stardom and a line item on your resume. A best-in-class SaaS financial modeling effort can make a material difference to the management team:
- A SaaS Financial Model can help you gain better insight and control of the business,
- Identify and focus on the real problems and issues of the business,
- A SaaS Growth Model can help you perform “what-if” analysis to fine tune growth strategy and highlight needed resources,
- Generate SaaS Financial Projections and budgets for future periods based upon different business strategies and assumptions,
- A SaaS Valuation Model can provide the insight and performance measurements needed to communicate with investors in order to raise additional capital.
What can a SaaS Financial Model do for you?
SaaS financial modeling can gather and analyze raw business data to create key performance indicators (KPIs) of the business’ health. For example, a well-designed KPI dashboard can provide you with insight into your Funnel metrics, bookings, MRR, Churn Metrics, LTV, CAC, and months to recover CAC. An understanding of these metrics is crucial to managing the business through each growth cycle and effectively monetizing the business.
Forecast resources needed to accomplish future business plans given different operating strategies (% growth, new product introduction, changes in cost structure, etc.) and resources (cash, headcount, etc.).
Provide the ability to summarize current and projected performance in understandable ways that communicate business decisions to management, board-of-directors, and investors.
What are the characteristics and components of a best-in-class SaaS Financial Modeling?
Best-in-class SaaS financial models have:
- A proven structure with modules that can be easily customized to generate the breadth and depth of functionality needed;
- Built-in “knowledge” of the financial application(s) needed to accurately reflect the business operating strategy. For example, do you have a simple low-touch sales model where most customers convert from a free 30-day trial subscription or is your sales model high-touch where sales personnel drive revenues? Modeling the high-touch strategy would require a more complex input module incorporating sales headcount, commissions, tiered or volume product pricing, and regional support. Likewise, the analysis effort would be more complex requiring cohort analysis of the various sales personnel.
- Are Custom built using the integrated structure and modules/algorithms, reflect how your business is run,
- Can be modified and maintained by your staff.
What are the major elements of a SaaS Financial Model?
- Business Data – Company structure, products, services, pricing, operating strategy, business model
- Input Data – Historical Financial Data, Assumptions, Employment Build
- Financial Model / Algorithms – Consolidated 3 Statement Model (CAC Analysis, Balance Sheet, P&L, Cash Flow), Detailed P&L, Revenue Build, Sales Model
- Outputs –Current Financial Statements, Financial Projections, Valuation, KPI Dashboard, LTV & CAC Analysis
The first step in any SaaS financial modeling development effort is to understand the company, its business model, products and services, structure, and operating strategy. A best-in-class financial model should accurately reflect attributes of the business and how it is run. Once the business data is defined the structure of the model is created. Input data is used to create a starting point for the model (historical actuals), define the assumptions used in generating future projections, and capture projected cost changes. The financial model and its associated algorithms are defined to comply with recognized accounting rules and company specific requirements. For example, accounting rules may allow revenues to be recognized in several ways, but company requirements define which specific revenue recognition policy will be used. The model will create a detailed analysis of the business financials from the business data and input data. Model outputs are general summaries of the detailed data, presented in a manner that is easy to understand (summary financials, graphs, and charts).
Here are examples of typical model outputs:
SaaS Financial Model FAQs
Are models specifically developed for each customer? What is the development process?
Yes, models are specifically developed for each client. Why – because each client is unique and has their own operating strategy. We use a 5-step development process to ensure the model meets the functionality and performance requirements for each customer. The overall process takes about 3-6 weeks and includes the following steps:
Step 1 – Listen, Learn, Gather Data. The first step is always to listen and learn about the business, the client, and the objectives of engagement.
Step 2 – Validate Assumptions and Data
Step 3 – Build & Validate the Model
Step 4 – Iterate Business Scenarios
Step 5 – Model Delivery, Documentation, and Training
Why are our models so effective in providing customers with better insights into their businesses?
After working with hundreds of customers improve their business insights through SaaS financial modeling, we have come to understand the key differences between what we do and others in the marketplace. Here is why are models and services are more effective:
- We are not starting from a blank sheet of paper. We have invested thousands of hours developing an integrated structure and the core modules that become the foundation of the model. Think of our base modeling structure as the bones and skeleton to which we add your custom data, algorithms, and output requirements. This approach provides clients with a custom, professional quality financial model at a competitive cost and in an expedited time-frame.
- We have an exceptional financial knowledge base and experience, specifically targeting SaaS and Software businesses. SaaS and subscription software businesses are unique in that their financial measurements and KPIs are different from traditional businesses that measure their performance based on product costs, inventory costs, units sold, etc. We know that key SaaS performance tend to focus our analysis around Monthly Recurring Revenue (MRR), Revenue and Customer Churn, Customer Metrics (LTV, CAC, ratio analysis, months to recover CAC), Cash Flow, Marketing Funnel Metrics, Sales Metrics and more traditional metrics like Gross Margin and EBITDA.
- Our SaaS financial modeling efforts produce results. Over one hundred SaaS and emerging software / technology businesses have successfully used this approach to: gain better insight and control of their business, focus on the real problems and issues, utilize the insight and performance measurements to raise additional capital, and communicate the best information and trends to board members, potential and current investors and management.
- We are responsive to your needs with quick delivery (usually 3-6 weeks) at a highly competitive price.
- We ensure that all individuals who use the model will be fully trained in accessing and adjusting model parameters and variables. We want the model to become a key management tool that you own, utilize, and modify as your business needs change.