SaaS Economics - Part 1: The SaaS Cash Flow Trough. This post provides SaaS entrepreneurs with an Excel spreadsheet model and graphs that show the cash flow trough that happens to SaaS, or other subscription/recurring revenue businesses that use a sales organization. These kinds of SaaS businesses face a cash flow problem in the early days, because they have to invest up front in sales and marketing expenses to acquire customers, and only get payments from those customers over a delayed period of time. I refer to this phenomenon as the the SaaS Cash Flow Trough. The model also compares the cash flows of businesses that charge monthly to those that are able to charge their customers for a year’s payment in advance. The greatest value from this post will come from downloading the model and inputting your own variables.
Part 2 of this series can be found here: SaaS Economics – Part 2: Scaling the Business. Where is this applicable What are the different analyses? Part 1: Looking at a single new sales hire The Cash Flow Trough Conclusions. Startups and financial models for SAAS companies. The other day I met with an entrepreneur I was advising as he prepared to raise his next round of funding.
In the meeting, he wanted me to narrow in and focus on his financial model. Financial models for startups are important from a big picture perspective, but I never like to get mired in the full details as things always change in the early stages. So first and foremost, I let him know that while it was nice to have a well thought out spreadsheet, that the most important thing was getting the product developed and the right team in place. I don't invest based on detailed spreadsheet models - getting comfortable with the team, the problem being solved, and the market opportunity are more important in the early days. Secondly, what is most important for me to understand is the expenses and what milestones will be achieved with this first round of funding and whether or not it would be suitable enough to raise the next round of financing. SaaS Economics - Part 1: The SaaS Cash Flow Trough. Ecom_course. Venture Capital für SaaS Startups || Matthias Hornberger.
Financial planning for SaaS Startups: Q&A with Christoph Janz. I quit my day job with my friend Igor I started a new company called elastic.io, a solution that helps people connect cloud API’s without programming. One of the major hurdles we faced when starting our company was how to do the financial planning for our SaaS startup. Since we thought this might be useful for other entrepreneurs, I wanted to share with you what we learned. Financial planning for Saas resources There are multiple resources that you simply HAVE to read before doing any financial planning for SaaS. First of all there’s David Skoks blog: his blog on “SaaS metrics” is a must read. After that I would recommend Christoph Janz‘ blog. Christoph is an entrepreneur and business angel from Germany, who invested in companies like Zendesk and FreeAgent Central.
In March 2012, Christoph published a couple of blog posts about financial planning for SaaS, which we studied intensely. Is a cheaper SaaS product always easier to sell? How are the costs of a running business distributed? 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.