Thursday, March 22, 2012

Financial planning for SaaS startups

[Update 03/23/16: I've created an improved version of the template - check it out!]

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, you can download it here. If you like it, tweet it!]

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.

60 comments:

  1. 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

    ReplyDelete
  2. Anonymous5:42 PM

    Hi Christoph,

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

    Best,
    Nils

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

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

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

    Thx

    ReplyDelete
  6. Anonymous5:24 AM

    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?

    ReplyDelete
  7. Anonymous5:08 AM

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

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

    ssheehan@leapfroghub.com

    ReplyDelete
  9. 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

    ReplyDelete
  10. 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

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

    ReplyDelete
  12. Federico Agustín Pedernera10:15 PM

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

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

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

    ReplyDelete
  15. an excel version would be great!!
    Thanks.

    mathieu.8@me.com

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

    ReplyDelete
  17. Andrew Landis8:31 PM

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

    ReplyDelete
  18. garrick9:48 AM

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

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

    ReplyDelete
  20. stanley4:36 PM

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

    ReplyDelete
  21. Jayson3:01 PM

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

    Thanks!

    ReplyDelete
  22. Emili Mata1:48 PM

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

    Thanks!

    ReplyDelete
  23. Blake Woodall11:53 PM

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

    ReplyDelete
  24. Grant Levy11:09 PM

    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

    ReplyDelete
  25. Jordan angelos8:29 AM

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

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

    ReplyDelete
  27. jonton12:14 AM

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

    ReplyDelete
  28. Niv Dror12:52 AM

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

    ReplyDelete
  29. Very useful. Nice and simple.

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  30. Ronaldo Radunz9:19 PM

    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!

    ReplyDelete
  31. Tim Wright11:17 PM

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

    ReplyDelete
  32. Brad Arsenault5:55 AM

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

    ReplyDelete
  33. Nandita7:00 AM

    Dear Christoph

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

    Thanks and Regards
    Nandita

    ReplyDelete
  34. anna rehermann5:52 AM

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

    ReplyDelete
  35. Ted Merwe1:37 AM

    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

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  36. chrija10:36 AM

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

    ReplyDelete
  37. 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

    ReplyDelete
  38. ClarkyBoy8:59 PM

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

    ReplyDelete
  39. chrija1:30 AM

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

    ReplyDelete
  40. Chef Julia2:04 PM

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

    ReplyDelete
  41. Jakob J. Lopez3:21 PM

    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

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  42. chrija10:49 PM

    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

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  43. 0-150 paying signups in the 1st month, would like to know how that happens with a startup?

    ReplyDelete
  44. Charif Hakim5:20 PM

    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

    ReplyDelete
  45. 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.

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  46. Tim Wright3:29 PM

    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

    ReplyDelete
  47. edna_holmes11:09 AM

    Nice post here Christoph. It's really cool to have such knowledge in financial planning with the use of the latest technology. https://www.greeneconsults.com/

    ReplyDelete
  48. Calvin Lawrence12:45 AM

    Thanks sir. This is awesome. Can you email excel spreadsheet to calvinl@virtualitouch.com and cc claw.66@hotmail.com

    ReplyDelete
  49. Jon Lee9:25 PM

    Many thanks bro! Looking forward to studying this sheet!

    ReplyDelete
  50. Murali T8:49 PM

    Thanks Christoph for sharing this plan. Can you please email me the excel spreadsheet to muralit (at) ireformat dot com

    ReplyDelete
  51. Hi,

    Great file. Thanks a lot!

    I have one question - in row 28 (customers mid month), you added rows 19 (Customers beginning of month) + row 23 (customers end of month) and divided the sum in 2.

    Why the division? I mean, the number of customers mid month is the sum of the new users + existing one, isn't it?

    Thank you so much for your help.

    ReplyDelete
  52. chrija11:45 PM

    Hi Uri,

    Thank you for your comment and the question.

    Since you're adding new customers continuously, presumably more or less linearly over the course of a month, I've made the assumption that in the middle of the month, you're at half the way between the start and the end of the month. This is of course a simplification and an assumption, but I had to make one for the purpose of the template.

    Best regards

    Christoph

    ReplyDelete
  53. SaasFM android application https://play.google.com/store/apps/details?id=com.smartapp.admin.saasfm

    ReplyDelete
  54. Andrew Das5:08 PM

    Hi Christoph,


    Thanks for sharing this great resource.


    Would it be possible to get an XSLX copy?


    Email: andrewadas@gmail.com


    Thanks

    ReplyDelete
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    ReplyDelete
  56. Murat Alikhanov10:45 AM

    Hi Christoph,


    Could you please send the xls template to alikhanov@idocs.kz (alikhanov at idocs dot kz) Thanks!

    ReplyDelete