background preloader

Financial planning for SaaS startups

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. Related:  Financial Planning for Saas

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

Financial models are always wrong. Build one anyway. - Foresight The financial model doesn't matter; the thought process does. To start, financial models are always wrong. But it’s important to create one anyway. I have created, modified, and delivered hundreds of custom financial models in Excel for a range of clients over the past decade, and learned a lot about how to create and use financial models in decision-making. Creating a financial model forces an entrepreneur to outline very specifically how a business “works”: how a company creates their products, how users and customers find and use their products and how those processes create revenues and costs. The result, a set of operational metrics, financial statements and the “equation of the business”, is one view of a potential reality of the business. Instead of focusing on the bottom line profit and net income, focus on the assumptions and key drivers of the business. Sounds hard? Resources for Business and Financial Modeling Financial Model Excel Templates Best Practices and Guidelines

B2B Startup Marketing | Blog Your Way to Leads | B2B Marketing Strategy B2B startup marketing is tough. It used to be that you could polish off a high level message and a slide deck and let the salesperson handle it from there. Today, online marketing is the primary driver of revenue at the typical B2B startup. The new breed of B2B buyer expects your online content to be engaging, valuable and deep, and is unlikely to engage your salesperson if you don’t deliver. The B2B Startup Marketing Blog Imperative Every B2B startup marketing professional knows that they need a blog, but not everyone recognizes it’s central importance in getting the B2B startup marketing effort off the ground. The Shortest Path to Deep Content Creativity is a process, not a plan. Your B2B startup marketing blog should be a crucible of creativity. Get Instant Results Through SEO and Social Media On the Web, the medium is quite literally the message. Integrate Blog Content Into the Buying Experience Don’t let your blog hang off the side of your website. Capture Your Prospects

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. After that I would recommend Christoph Janz‘ blog. In March 2012, Christoph published a couple of blog posts about financial planning for SaaS, which we studied intensely. This sample financial plan is pretty detailed and you can read it on Christoph’s blog, so I won’t go into it again, but after we studied it, we still had a few unanswered questions about it. Is a cheaper SaaS product always easier to sell? Unfortunately, according to Christoph, this is just not true.

Cloudonomics 101 - Creating a Financial Plan for your SaaS or Cloud C… The Truth About Start-up Marketing I am a Full-Stack Marketer. For years I’ve struggled with how to describe what I do professionally. The default answer is “Online Marketing” but these days every marketer is an online marketer. Nevermind the age-old stereotypes of a marketer being a 29 yr old female blonde who doesn’t have the technical or analytical skills to do anything else. People generalize. I didn’t come up with this term, but rather found it recently through fellow full-stack marketer, Mark Evans, and the great post he discovered on GeekWire. Rather, his point was that startups need a different kind of marketer. It clicked – this is what I do. Lavalife (2006): As a company that was in its maturity stage, understanding the ROI on each dollar invested in marketing was crucial for all marketing tactics at Lavalife: Paid Search: the easiest and often most effective way to spend your direct response budget. In 2009 I joined Kobo as the first online marketer. There is no such thing as a start-up marketing playbook.

How to estimate Lifetime Value; Sample cohort analysis In many businesses, repeat purchase behavior is a key driver of value. Many companies track % of repeat purchases as a key business metric. This is useful in steady state, but can sometimes be quite misleading if the company is showing substantial growth. I prefer to try to analyze repeat pruchase behavior, and hence, estimate lifetime value, by doing cohort analysis. I’ve uploaded a spreadsheet with a sample cohort analysis, using representative but dummy data to illustrate how to do this. In this particular example, I look at a hypothetical subscription business. By averaging across the cohorts, you can get an average retention rate at the end of one month, two months and so on. A typical pattern found in subscription businesses is that after a steep drop off after an initial period, month-on-month attrition rates tend to level off. If you see a pattern like this, you can extrapolate forward using the same month-on-month attrition across several years.

SaaS 101: 7 Simple Lessons From Inside HubSpot It’s been a little over 4 years since I officially launched my internet marketing software company, HubSpot. (The “official” date is June 9th, 2006 — for those that are curious about such things). So, I’ve had about 4 years on the “inside” of a fast-growing, venture-backed B2B SaaS startup. Quick stats: ~2,900 customers, ~170 employees and $33 million in capital raised. In any case, let’s jump right in. 7 Non-Obvious SaaS Startup Lessons From HubSpot 1. Quick Example: Lets say it costs you about $1,000 to acquire a customer (this covers marketing programs, marketing staff, sales staff, etc.). 2 Retaining customers is critical. Quick math: Figure out your total acquisition cost (lets say it’s $1,000) and your monthly subscription revenue (let’s say again say it’s $100). 3 It’s Software — But There Are Hard Costs. Quick exercise: Talk to other SaaS companies in your peer group (at your stage), that are willing to share data. 4 It Pays To Know Your Funnel. So, what do you think?

What the data reveals about how to make SaaS secret sauce By Ben Sesser On June 15, 2013 Life would be much easier if a great product was the only requirement for a great business. Of course, talk to any vineyard owner or long-time New York Times shareholder and they can attest that this is not the case. Software as a service companies are no different. As challenging as it is to build great software someone is willing to buy, other pieces must fall into place for success. In SaaS, three critical pieces that must fall in place to create long-term value are price, customer acquisition cost, and churn. That these factors are important and should be tended to is not headline news for an experienced enterprise entrepreneur. In an effort to make the task marginally easier, particularly for new entrepreneurs, I pulled together and analyzed data on these key metrics to tease out how they influence one another; what success and failure look like given different profiles of SaaS companies; and where opportunities for leverage may be.

Related: