Thursday, March 22, 2012

Financial planning for SaaS startups

A few people who read my recent post about financial planning asked if I could provide an example for a good financial plan, so I'd like to post one here. The plan is very similar to the one that I created in the very early days at Zendesk and re-used a few times in the meantime, but I had to make a few adjustments to make it more generic.

It's a simple plan for an early-stage SaaS startup with a low-touch sales model – a company which markets a SaaS solution via its website, offers a 30 day free trial, gets most of its trial users organically and through online marketing and converts them into paying customer with very little human interaction. Therefore the key drivers of my imaginary startup are organic growth rate, marketing budget and customer acquisition costs, conversion rate, ARPU and churn rate. If you have a SaaS startup with a higher-touch sales model where revenue growth is largely driven by sales headcount, the plan needs to be modified accordingly.

For non-SaaS business models the template needs to be modified more heavily or may not be useful at all, other than that it shows my way of thinking around business planning. That was one of the points that I was trying to make in the original blog post – you can't simply re-use a template, your financial plan needs to mirror your specific business case.

Here's the plan as a Google spreadsheet. If you want the original Excel version please let me know (yes, Excel is one of the few desktop apps that I'm still using).

[Update: If you'd like to get the original Excel version, which looks a bit nicer, click here to get it in exchange for a tweet...or drop me an email. :-) ]

The grey box at the left contains all assumptions (blue text color). Everything on the right is calculated, no hard-coded numbers there. I have, of course, used dummy numbers for all assumptions.

The model should be largely self-explanatory but here are a few notes:

  • It all starts with the signups that you're adding. I've separated signups into non-trackable signups (signups that you get from word of mouth, PR and so on) and trackable signups (signups from AdWords and other paid advertising where you can track the costs of acquiring a signup). You may have to break this down further depending on your customer acquisition channels.
  • Then I'm assuming that you're converting a certain percentage of signups into paying customers (with a one month time lag, assuming that you have a 30 day free trial). The model contains just one conversion rate regardless of the signup source. You can change that if your conversion rate varies depending on the signup source.
  • Next up, I'm calculating revenue by multiplying the (approximate) number of customers that you have mid-month by your average revenue per account. If you have a tiered pricing model or a per-seat pricing, consider modeling that.
  • Moving down to the costs side – this should all be self-explanatory. Just replace the dummy values by your actual values or assumptions and add additional expense categories as needed.
  • Regarding P&L and cash-flow, I'm keeping things really simple here and am assuming that your EBIT is equal to your operating cash-flow. That is, I'm assuming that you're charging your customers on a monthly basis, that you're not making any investments (in accounting terms) and that there are no taxes or interest payments. I think that simplification works well for most very early-stage SaaS startups but it of course needs to get more sophisticated as you grow.
  • Last – but not least because this is one of my favorite parts – the sanity checks: I've seen MANY financial plans with an EBIT margin north of 90% in year 3. That's a classic mistake which can happen if you project your revenues to grow exponentially but don't provision realistic increases on the costs side as well. Adding some sanity checks will help you spot these mistakes and make sure that your plan remains realistic. For example, I've included the number of paying customers which each support agent needs to take care of. If that number gets too high you need to allow for more support staff.

51 comments:

Roberto said...

Christoph,

great little tool. Although I am missing the cash projections - which are not that easy to calculate but quite important if you are planning to bootstrap. In my experience a lot of customers pay you a year upfront, especially if you give them 2 months for free. So you get a lot more money on your accounts - even if this is not represented by revenue numbers.

Roberto

Anonymous said...

Hi Christoph,

thanks for the example and spreadsheet! ...I haven't been checking your blog lately.

Best,
Nils

Terrence said...

Useful post.
I would like the excel version please. t2y@me.com Thanks!

Christoph Janz said...

Check your inbox. :)

Klantbooster said...

Great post,
I would like the exel version info@klantbooster.nl Tnx

Christoph Janz said...

Sent. :)

Carl, 3rd Generation Shoe Manufacturer said...

Great tool. Can you send the excel version to carl@jjshoes.nl,

Thx

Anonymous said...

Why are people asking for the Excel spreadsheet? can't you just download it from your Google Docs as an xls?
Is the Google Docs version missing something?

Anonymous said...

Can you send me the excel. Michaelyork06@gmail.com

Susan Sheehan said...

hi - is it still poss to get an excel version sent?

ssheehan@leapfroghub.com

Christoph Janz said...

Sent!

FB said...

Greetings -

Thanks for putting this file together. Few questions:

[1] You mentioned that this file is for low-touch SaaS businesses. As the business grows and starts to get into the high-touch model, what else besides including sales headcounts and appropriate reseller model, is required to introduced to this file?

[2] Cost per acquisition: I want to capture cost per acquisition for new customers. Do you agree that we just take Total Marketing / Total new Customers? (H55 / H21)?

[3] Lifetime revenue per customer: Ever thought about introducing a lifetime revenue per customer metric to this file?

[4] Committed Monthly Recurring Revenue (CMRR): can your row 30 (Gross revenue) be considered your CMRR?

[5] Customer Acquisition Cost Ratio (CACR): would it be possible to use the existing sheet and calculate this metric?

Thanks in advance

J.Pons said...

Useful, but not realistic.
I made the same mistake once.
To get 150 "signups" the 2nd month, you probably need 15.000 visits (1% conversion ratio). To drive that traffic, you should spent about 15.000$ at the beggining (avg 1$ PPC). Also, the conversion ratio on 20% is too high (of course, ir depends on product, ..etc)
I mean, is good to have a model, but I would be better if you have a a more realistic model, because if not, all the entrepeneurs that see your spreasheet could think that their produc/model is not good enought.
btw, love you blog. Keep posting!
Thank you
Joan

Manish said...

I would appreciate an excel version to mpunjabi@gmail.com. Thanks!

Federico Agustín Pedernera said...

Thanks!! Great help. I'm writing you to ask for the Excel version
Best Regards
Fede

Kevin Meakings said...

Hi Can you send across the Excel version pls? kevinme@csi.com

Michel Santos said...

Great post! Can you please send the Excel version? My e-mail is michel.moreirasantos@gmail.com. Thanks

matt said...

an excel version would be great!!
Thanks.

mathieu.8@me.com

Shopitizer said...

Hi! Super useful. Would it be possible to email olgabukur@gmail.com the Excel? Thank you!

Andrew Landis said...

this is great...would love the excel doc. my email is landingo@gmail.com thanks!

garrick said...

Great post. I would appreciate an excel version to garrick.bs@live.com. Thanks!

Phil said...

Really enjoyed this post. I would appreciate an excel doc if possible: philborland05@gmail.com. Cheers!

stanley said...

May I also get the doc to stanleykyaw@gmail.com. Thanks !

Jayson said...

Great post. Could you send the excel sheet to J.fetterley@addmill.com

Thanks!

Emili Mata said...

Thanks for the post. Can you send the excel dot to emilimata@hotmail.com?

Thanks!

Blake Woodall said...

Great article. I would love to see your model. can you send it to bew24u@yahoo.com

Grant Levy said...

Really enjoyed this post. I would appreciate an excel doc if possible?Do you have a 3 year forecast example for a new startup? Many thanks. grant_levy@hotmail.com

Jordan angelos said...

Awesome post. Mind sending the excel my way? Jangelos4@gmail.com

MG said...

Great post! could you please email the excel to me as well
michael_golomb@yahoo.com

jonton said...

Great organization! could you send a copy? jon.wong92@gmail.com

Niv Dror said...

Great post! (everyone, you can open the google doc and click File --> Save As --> Excel)

Appraisly said...

Great post!

KuH said...

Very useful. Nice and simple.

Ronaldo Radunz said...

Thanks Christoph.

I see there is no line for a VAT cost on your sheet.
I understand VAT cannot be inside EBIT, but as this is a significant cost, and I need cash flow control, I added VAT to Net Revenue, but not to P&L.
Is this the right approach?
Thanks!

Tim Wright said...

Great work, this is awesome. Could you send me the excel doc. Tsw.key@gmail.com

Brad Arsenault said...

This is really excellent and incredibly helpful. It's helped both my partner and I refocus a bit. Thanks Christoph!

Nandita said...

Dear Christoph

Could you please send me the excel on drnanditakatiyar@gmail.com

Thanks and Regards
Nandita

anna rehermann said...

Thanks for sharing this, it's incredibly useful! Could you please email me the excel to annarehermann@gmail.com? Thanks Christoph!

chrija said...

Done!

Ted Merwe said...

Christoph Janz - a great SAAS Financial spreadsheet - please send a excel copy to saexpatATgmail.com



I see you have no tax costs after EBIT - in the State of Hawaii we have the following:


1. Federal Tax = 30% based of profits
2. GET (General Excise Tax is a sort of a VAT tax) that is based on 4.6% of Gross Revenues
3. This should show in P&L


Anyway do you have a copy that includes taxes and cash flow?


All your help is a appreciated
Ted

chrija said...

Ted, thanks! No, I don't have a copy with taxes in there, but should be easy to add.

repIGNITE.com said...

Christoph, thanks for great saas business plan. I just want to ask if its possible to add some variables to better fit with pay per seat model ? There are some problems with it -> each customer orders different seat qty.

Thanks for help!


Paul Jordan
http://repIGNITE.com SAAS Sales Contest Platform for inside sales teams

ClarkyBoy said...

Thank you for this! May I please have a the XLS Version rotemben@gmail.com
Thanks!

chrija said...

Good idea, Paul, I'll add that in the next iteration of the plan. Shouldn't be that hard!

Chef Julia said...

Thanks Christoph! If you can send the excel version to juliachien88@gmail.com that would be great! Thanks again. Best. JC

Jakob J. Lopez said...

Thanks for this very useful post, Christoph.


I have a specific question concerning your very nice spreadsheet. The cell "G14" (New trackable signups) is defined by "G12/G13" (Marketing spending/Acquisition costs). Is this the correct definition? I would be grateful for any comment. Thanks so much.


Jakob

chrija said...

Hi Jakob,

Thanks for the kind words, glad you like the spreadsheet.

I think this makes sense, yes. It assumes that a part of your signups can be traced back to your marketing activities, and you get to the number of these signups by dividing your marketing spend by your costs per signup.

Best regards

Christoph

Kris said...

0-150 paying signups in the 1st month, would like to know how that happens with a startup?

Charif Hakim said...

Thanks Christoph for sharing this great SaaS spreadsheet !! It is a very useful post :-)

Please send the original excel version to: charif@appalladium.com

Cheers,

Charif

Bubba Page said...

This is awesome! Thanks for helping out - and I just used Virally to share it to my twitter followers. I am looking forward to testing this out with my startup http://QuotaDeck.com which is going through the Techstars Boulder program right now.

Tim Wright said...

Hi Christoph,

Firstly thanks for a great blog and great spreadsheet.

However, how would a start up define its "Acquisition costs 1st month" without actually having a real life business running with real data. I feel like I am making a huge assumption of how effective my marketing may or may not be and how much penetration the idea will have in the first month. Do you have any advice as to how to improve this assumption so it is more accurate?

Many Thanks

Tim

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