15 tools for building powerful SaaS business models & financial plans.
Growing a software startup?
Having the right financial forecast in place isn’t just essential for your next raise: it should be the lifeblood of your business. With the right model, 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.
At Think Plan Thrive, a good deal of our work is in helping startups to grow through business, commercial and marketing strategy. We understand how important this is first hand - and how it can make or break a company - both in day-to-day running and in their next investment pitch.
Below are some of our favourite resources and tools, that have shaped the way that we approach commercial strategy and developing financial models. A word of warning: it’s better to find your own way than copy someone else’s. Don’t fill in a template and hope for the best. Work through and develop your strategy first, before committing anything to a spreadsheet. It’s the key to making a model useful to your business and convincing for investors.
Any questions? Send me a mail, I’d love to hear from you.
SaaS financial models, KPI’s and terminology.
Software as a service business have special characteristics that make them incredibly powerful. At the heart of their lure to VC’s is the consistent revenue that customer subscriptions can bring. But as Baremetrics outline, you must make sure that your financial model is measuring the right things, and your team are working to the right KPI’s - or it could put you out of profitability and even out of business.
Here are some of the best resources on the key considerations and best practices for SaaS 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 you 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.
- Noah Kagan on the evils of modelling growth: You’re Still Modeling 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, Modeling 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 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?
General spreadsheet etiquette.
Honestly. Not the hottest topic I know, but the way your model is laid out in Excel is incredibly important to an investor. It makes it easy to analyse and you’ll get better questions. Better responses. If it’s designed right, you might even use it to make your business go faster.
- 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? Do you know 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.
If you have any questions, comments or queries, why not drop me a line. 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.