A Plug-n-play SaaS Financial Model Template and How to Use It

This post was originally written on the Chargebee blog.

Done right, a SaaS financial model can be a very useful tool for strategic CFOs and finance leaders to make data-driven decisions and demonstrate future growth to internal and external stakeholders.

Irrespective of the growth stage you’re in, SaaS companies need financial models to drive insights from the company’s financial statements so that they can balance growth versus costs and forecast future revenue.

Before we get to the template, there are nuances to a SaaS financial model that one must understand.

What is a SaaS Financial Model?

Simply put, SaaS financial modeling is a process of charting a summary of the expenses and revenues of your SaaS. It also includes present and future revenue forecasts and important KPIs that a finance leader must keep track of.

While traditional financial models might include these elements for a single product revenue projection, SaaS financial models must factor in the complexities of recurring revenue that comes in with subscriptions, churn, and the impact it has on predicting future revenue.

SaaS businesses typically incur high costs in their early stage, when the focus is on acquiring new customers. Since the revenue is accrued over a period of time, it is critical to track customer retention and reduce customer churn for SaaS businesses.

That’s why it is critical to use financial models that are tailor-made for the nuances of the SaaS business model.

Importance of a SaaS Financial Model

There’s much more to efficiently running a business than having an understanding of your financial statements.

To earn a seat at the table and drive strategic growth, modern finance leaders must surface valuable insights that help leaders connect the dots internally. With a robust SaaS financial model in their arsenal, finance leaders can leverage data-driven insights to shape business strategy and the growth path for their company.

A SaaS financial model is important because:

• It gives you an understanding of the financial viability of the business.
• It gives you a sandbox to understand the impact certain strategies may have on your profitability, through forecasting.
• It gives you a comprehensive picture of the cash flow in relation to the expenses.
• It helps you keep a close tab on your unit economics.

Key Components of a SaaS Financial Model

And with that, let’s begin with understanding the key components of a SaaS financial model and an excel model template we have prepared for you.

1. P&L Statement or Income Statement

The Profit and loss (P&L) report summarizes the cash flow statements and balance sheet of a company during a specified period. This report can act as the single source of truth to assess the financial health of a business and can be used to create viable financial plans.

From the P&L statement, you get a picture of expenses, profits before taxes, and ultimately, your gross profit.

2. Revenue Models

This is where you track your recurring revenue: Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR). Common elements of this report include new MRR, expansion MRR, downgrade MRR, and churn MRR.

This report gives you an idea of revenue at the end of every month and also the % logo churn that has occurred.

The forecasting model can be used to create financial projections to predict future revenue growth for your SaaS.

For complete article, please visit Chargebee blog.