15 tools for building powerful SaaS business models & financial plans.
Growing a software startup?
Good thinking and a business model in place isn’t just essential for your next raise: it should be the lifeblood of your business. With a good strategy, you’ll be able to plan, measure and optimise you activity, making sure that everything you do grows your customer base and your bottom line.
This little guide outlines some of our favourite resources and tools for developing SaaS (and subscription) businesses. We use these every day to develop commercial strategy, financial investment cases and ultimately help startups to grow.
PS. If you’re growing, but a little stuck with something, we offer free strategist sessions to work through these things together. Simply send me a mail, I’d love to hear from you.
SaaS financial models, KPI’s and terminology.
The software as a service business model can be a great lure for investors.
But it’s easy to kid yourself that growing revenue through a subscription base is enough to make your business perfect for investment and growth. Consider this: if your business has a monthly churn of just 2 - 3%, you have to grow your customer base by almost 40% each year just to stand still.
To grow well, you’ve got to measure the right things. Get your team are working to the right KPI’s. And keep an obsessional tab on how your business is progressing.
Here are are some of the best resources on SaaS business models we know of, as well as key considerations and best practices for growing startups.
- The fundamentals of the SaaS business model, from the viewpoint of a VC. Andreessen Horowitz, Understanding SaaS, a Valuation Primer.
- Building goals and targets into your model: Christoph Janz, A KPI Dashboard for early-stage SaaS Startups.
- Is your business viable? David Skok, SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters.
- A simple, useful SaaS financial model. Baremetrics - A SaaS financial model you’ll actually update.
- An in-depth introduction to key financial terms for SaaS businesses by Nikos Moraitakis, Financial planning for SaaS startups.
- Predicting the most important aspect of your SaaS model: your customer base. Sean Moran, How to project customer retention for a subscription business
- A simple way to start with the basics: Christoph Janz, The Easiest Spreadsheet for churn, MRR, and Cohort Analysis.
- Classic KPIs for software businesses: Dave McClure, Startup Metrics for Pirates.
As a SaaS business, you live and die by your user acquisition plan: how effectively you can gain traction (and keep it).
It’s difficult to forecast. Difficult to model. Difficult even to measure effectively as you progress.
Discipline - and using advanced techniques like cohort analysis will allow you to understand which segments of your audience respond to which of your marketing activities - and what value the resulting customer base hold for your company. Get your customer acquisition costs (CAC) and lifetime value (LTV) measures right, and you’ll be a long way toward building a profitable business for the long term. Below are some of the articles we often use - and refer startups we work with to. They’re a great introduction - or reminder - of how to drive acquisition without spending everything you’ve got on advertising.
- Noah Kagan on the evils of modelling growth: You’re Still Modelling Growth Wrong.
- A great walk-through on calculating cost per acquisition for SaaS businesses from Andrew Chen, General Partner at Andreessen Horowitz: How to calculate cost per acquisition for startups.
- Building viral loops - the key to low cost acquisition models. Andrew Chen, What’s Your Viral Loop?
- Practical tips on modelling the cost of user acquisition - tips on being realistic and balancing monetisation with acquisition (especially if you’re not based in the Valley with a deep-pocketed investor). David Skok, Modelling User Acquisition.
THE SECRET TO SECURING INVESTMENT AND A GREAT VALUATION.
If you're working on a round of investment, it's often difficult to know what to focus on.
Here's the secret. There's little more important to an investor than a great business model, and a strong financials behind it. It's the key to raising capital. And getting the valuation that you and your business deserve.
We're offering a free micro-course to get you started. Developed in conjunction with the Design Council - we'll outline our approach to building a great investment case, and exercises to building your own. What are you waiting for?
Honestly. Not we know this isn’t the most exciting topic, but the way your model is laid out in Excel is incredibly important to your business - and to an investor. It makes it easy to analyse. You’ll get better questions. Better responses. If it’s designed right, you might even use it to make your business go faster.
Below are just three great resources on how to structure your model. Grab a cup of tea, and have a read. We promise they’ll be worth your while.
- There are actually standards for these things. One is called The FAST Standard for financial modelling. It’s worth a read, I promise.
- If you can’t get enough of spreadsheet formatting, here’s some more practical advice from Taylor Davidson: Why Foresight is adopting the FAST Standard
- Finally, here’s a great article from David Teten on Best Practices in Spreadsheet Design.
A few last thoughts.
If you're growing a SaaS startup, have an audit of what you have in place to measure your growth and traction. Do you know how much it costs to acquire a user? How long they stay with you? What their lifetime value is? And how that varies with different cohorts?
Even at an early stage in your growth and development, these measure are crucial. It's worth getting to grips with the technical stuff, and making it a part of your team's day to day, no matter if they work on technical development or marketing. A model done right - built from the ground up and around your business (ahem, no templates please) - can not only help you get investment at a better valuation - it can provide you with great insight into the crucial decisions for growth.
This is just the start. We have loads more resources on our blog. And if you have any questions, comments or queries, why not drop me a line, or book a chat (see below). I'd be really interested to hear what you're up to.
Jared is a partner at Think Plan Thrive, a London based Strategy company. We help organisations seize opportunity. Execute and grow, fast. We’re specialists in commercial and marketing strategy, pitch and investment cases.
We love a chat. Ask us questions. Let us buy you coffee. We want to hear what keeps you up at night, we might just be able to help.
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