SaaS Business Forecast Readiness: Your Step-by-Step Guide

Building out a forecast for a SaaS business is a daunting task, especially if you’re not in finance. So we built out an entire step-by-step process and walkthrough on what you need to do to prepare for building out the forecast. 

Here’s the video, and below is the writeup on each section for reference:

📝 Mastering Customer Segmentation to Know Your Audience

First up, let’s explore Customer Segmentation and pricing. This section helps you organize and clarify your customer segments and understand the basics of pricing. The worksheet is customizable and automated, so labeling your segments (e.g., “small,” “professional,” “enterprise”) will update across other tabs. If you have more than 4 tabs segments, you’ll need to add them in manually. 

Now, let’s move on to key features.

🛠 Identifying Key Features Required For Purchase

Next, each customer segment in a B2B SaaS business generally requires different levels of or types of integrations and feature sets. This area is important because the model builder needs to understand pricing for each segment, but also if there are relations to particular feature sets or integrations that cost additional money at different levels.

Replace the following items with what your customers need and mark to the right of each feature at which level it is required.

Listing these required features helps structure your product effectively. For example, enterprises might need SOC2 compliance and single sign-on for stringent data security and seamless integration, while small businesses may not. Advanced reporting might be essential for enterprises, but basic features could suffice for small businesses. 

So, remember to tailor your product to meet the specific needs of each segment to make it more appealing.

💲 B2B SaaS Pricing Insights

Next, ask yourself: What is the average revenue per account for each segment? 

• Identify the value metric (seat-based, usage-based, etc.) to understand your ARPA, which is crucial for forecasting revenue, setting pricing strategies, and evaluating customer financial health. 
• List any upsells, like training or implementation services, to capture additional revenue. 

For example, enterprise implementations might average $10,000, while smaller ones might be around $1,000. Document these figures to ensure your pricing strategy aligns with the value provided to different segments. This helps in accurate forecasting, efficient resource allocation, and maximizing revenue opportunities.

👜 Practical Application

• Use the segmented customer data to create targeted marketing campaigns. For example, develop separate marketing strategies for small businesses and enterprises. Small businesses might respond better to cost-saving features and simple integration, while enterprises might be more interested in compliance and advanced analytics. This targeted approach can increase engagement and conversion rates.
• Adjust your product features based on the needs of each segment. For example, offer basic features at a lower price point for small businesses and advanced, customizable features for enterprise clients. This differentiation ensures each segment receives value according to their specific requirements, leading to higher customer satisfaction and retention.

📈 Optimizing Sales Mix to Achieve Revenue Goals

Nailing the customer sales mix assumptions will help you to understand how many customers you need and at what price to achieve your revenue goals.

In an enterprise B2B SaaS setup, calculate the average seats per account and price per user. Adjust percentages to ensure your targets are feasible. 

For example, estimate:

• 30 seats for a small account
• 100 seats for a professional account
• 400 seats for an enterprise account

Prices per user might be $350, $325, and $300, respectively. 

Calculate average revenue per account and adjust percentages to reflect realistic expectations, ensuring achievable targets. Think of it this way: If you need 900 users, is it realistic to get them from 30 accounts? 

Example of Revenue Calculation for Enterprise B2B SaaS Setup:

Revenue = (Average Seats per Account) × (Price per User)

• Small: Revenue=30seats × $350/seat/year=$10,500/year
• Professional: Revenue=100seats × $325/seat/year=$32,500/year
• Enterprise: Revenue=400seats × $300/seat/year=$120,000/year

Feasibility Check:

Adjust Percentages → Evaluate Feasibility → Set Realistic Goals

• Adjust Percentages: Determine the distribution of account types in your sales mix. For example, you might expect 10% small accounts, 20% professional accounts, and 70% enterprise accounts.
• Evaluate Feasibility: Calculate the total revenue based on these percentages and check if your targets are realistic. Assume 100 total accounts.
• Set Realistic Goals: Based on this calculation, assess if having 100 accounts with this distribution is feasible. Adjust the percentages or the total number of accounts as needed to set achievable targets.

Total Revenue=(0.1×100×10,500)+(0.2×100×32,500)+(0.7×100×120,000)

Total Revenue=105,000+650,000+8,400,000=$9,155,000/year

In the case above, we have a potential first year sales at the enterprise level of $8.4 million dollars. Is that really feasible?? Maybe it’s time to bring down estimates for first year sales on enterprise customers?

By following this approach, your sales mix and revenue goals will be more realistic and aligned with market conditions and internal capabilities.

💡 Practical Insights

• Highlight key numbers, such as the number of accounts and revenue per segment. This helps determine whether your targets are reasonable and guides your strategy moving forward. 
• Monitor your sales pipeline metrics—lead conversion rate, opportunity win rate, sales cycle length, average deal size, and churn rate—to gain deep insights into your sales strategy, identify areas for improvement, and drive sustainable growth.

By understanding these details, you can plan your sales efforts more effectively.

🤑 Effective Strategies for Customer Acquisition Costs

Next, let’s jump into Customer Acquisition Costs, which will help you understand your financial planning when acquiring new customers.

This section calculates your ARPA (Average Revenue Per Account), MRR (Monthly Recurring Revenue), total customers, and churned customers, providing a clear picture of your financial health. 

To begin, let’s take a look at the components that form the foundation of your financial forecasting. First, we start by entering your:

• CAC (Customer Acquisition Cost) max: $1,000
• CAC min: $500
• S&M yearly budget: $240,000
• Churn start: 8%
• Churn by End of Year 3: 2%
• ARPA start: $6,000 
• ARPA End of Year 3:  $10,000 

These inputs help calculate key metrics, considering churn rates, new customer acquisition, and sales and marketing spend.

Based on your budget, allocate resources effectively to visualize your yearly run rate and MRR. Understanding these numbers provides a solid foundation for effective customer acquisition strategies.

💸 Practical Application

• Analyze your CAC for different customer segments (small, professional, and enterprise accounts) and adjust your spending to optimize acquisition costs. If you are acquiring small accounts with a higher CAC but lower lifetime value compared to professional or enterprise accounts, reallocate your budget to focus more on professional and enterprise accounts. This strategic shift can improve your overall cost efficiency and ROI.
• Conduct scenario analysis to test different budget allocations. For example, allocate a higher percentage of your sales and marketing budget to the channels that historically perform best. If digital marketing has shown a better ROI than events, allocate more funds to digital campaigns. Simulate various allocation scenarios in your forecast to identify the most effective spending strategy and ensure the best return on your investment.

Need help optimizing your customer acquisition strategy but unsure how? We’re here to help!

👥 Budget Your Payroll for Optimal Team Performance

Now onto the Payroll section, which helps you to budget for your team salaries and incentives effectively.

List each employee, their start and end dates, monthly salary, and bonuses for a clear payroll structure. If unsure about bonus and incentive structures, my forecasting webinar covers detailed breakdowns. 

Categorize employees by departments and roles, ensuring responsibilities align with strategic objectives. 

Example categories: 

This supports efficient management and operational excellence. While the current worksheet includes basic salary details, future updates will include modifiers for taxes, insurance, and benefits, providing a comprehensive view of payroll expenses.

📒 Practical Application

• Bonuses Don’t skip on adding bonuses. Incentivization pushes the organization forward and drives the connection between your financial forecasting and your OKRs.
• Use a dynamic payroll forecasting model that adjusts salaries and incentives based on performance and market rates. By regularly updating employee information with performance reviews and market salary data, you ensure competitive compensation. This approach helps retain and attract top talent while aligning employee rewards with company performance, increasing your overall productivity and satisfaction.
• Plan for seasonal workforce changes by adjusting your payroll forecast to include temporary hires or overtime pay during peak periods. For example, if your business experiences a surge in demand during the holiday season, budget for additional temporary staff or increased hours for existing employees. This ensures you have the necessary staffing levels to meet demand without overspending during slower periods, maintaining financial stability and operational efficiency.

📅 Plan for Seasonal Fluctuations in Your Sales Forecast

Seasonality can significantly impact your sales figures. If seasons affect your sales, it is important to account for these fluctuations in your forecasts or your sales projections will be off dramatically.

If your sales are seasonal, you’ll need to adjust the figures accordingly to ensure accurate forecasting. 

A simple way to think about it is using 8.3% per month, which totals 100% annually. However, you might need to tweak these percentages to better match your sales patterns. For example, if certain months historically perform better, adjust those figures accordingly.

📈 Calculation Example

Let’s break this down with a calculation to give you a better idea:

Assume your total annual sales forecast is $1,200,000. If you distribute this evenly across the year, each month will represent 8.3% of annual sales, which is $100,000 per month.

Monthly sales = Annual Sales ÷ 12

Monthly Sales = 1,200,00 ÷ 12 = $100,000 

However, suppose your business sees higher sales in Q4 due to seasonal demand, with December being particularly strong. You might adjust your percentages like this:

• January to March: 7% each
• April to June: 8% each
• July to September: 9% each
• October to November: 10% each
• December: 15%

Using these adjusted percentages, your monthly sales would be:

January to March: 1,200,000×0.07=84,0001,200,000 \times 0.07 = 84,0001,200,000×0.07=$84,000

April to June: 1,200,000×0.08=96,0001,200,000 \times 0.08 = 96,0001,200,000×0.08=$96,000

July to September: 1,200,000×0.09=108,0001,200,000 \times 0.09 = 108,0001,200,000×0.09=$108,000

October to November: 1,200,000×0.10=120,0001,200,000 \times 0.10 = 120,0001,200,000×0.10=$120,000

December: 1,200,000×0.15=180,0001,200,000 \times 0.15 = 180,0001,200,000×0.15=$180,000

This adjustment ensures that your forecast more accurately reflects historical sales patterns, allowing for better resource allocation and planning throughout the year.

✍️ Practical Application

• Change the monthly values to represent these fluctuations. This adjustment ensures your forecast remains realistic and aligns with actual sales trends.
• Use scenario planning to adjust your budget allocation based on seasonal trends. For example, if your sales peak in Q4, allocate a larger portion of your marketing and sales budget to that quarter. This ensures you have the resources to capitalize on increased demand and maximize revenue during peak periods.

Understanding and incorporating seasonality into your forecasts will provide a more accurate picture of your business performance throughout the year. 

📈 Strategic Sales Headcount Planning for Growth

This section is all about understanding and planning the growth of your sales team and the associated costs. That’s why I’ve highlighted some key questions for you to ask yourselves:

• How many salespeople per sales director?
• How many SDRs (Sales Development Representatives) per SDR directors?
• How much revenue has to be produced before a new account executive is hired?
• Do you have account managers and account executives?
• How many new clients before a new account manager is hired?
• How many SDRs do you start with?
• How many account execs will you start with?
• How many sales directors do you start with?
• What is the yearly total cost (payroll, benefits, taxes) for the following roles:
  • SDR
  • SDR director
  • Account executive
  • Sales manager
  • Account manager

Understanding the roles and costs associated with each position is essential. If you are unfamiliar with the responsibilities of these roles, they can be easily researched online. Just make sure you gather accurate information to input into your planning worksheet.

🔍 Practical Approach

• Answering questions about the number of hires needed, their salaries, and the overall budget for sales personnel will give you a clear picture of your sales team’s growth trajectory. This will help you forecast expenses and align them with your revenue goals.
• Accurate sales headcount planning is vital for scaling your SaaS business effectively. By precisely forecasting the number of sales personnel needed, you can ensure that your team is neither understaffed nor overstaffed, optimizing both performance and budget.

💸 Discounting Done Right for Accurate Forecasts

Now, onto the tricky subject of discounting in your forecasts. As with understanding your headcount planning, you must also understand and plan for discounting because it helps to create accurate financial projections.

However, the challenge with discounting is that it can complicate forecasts, especially if you’re unsure how discounts are applied. For example, if you have enterprise sales at a set amount but apply discounts, those reductions must be reflected in your forecast.

📉 Incorporating Discounts

A clear discount strategy in your forecast is crucial. Detail how and when discounts are applied to ensure your financial projections remain realistic and accurate. This will help you understand the impact of discounts on your revenue.

For example, if your SaaS company offers a 10% discount for customers who purchase more than 50 user licenses.

In your forecast, for every sale above 50 licenses, apply a 10% reduction on the total revenue from those licenses. 

So, if 60 licenses are sold at $100 each, the total revenue without discount is $6,000. Applying a 10% discount, the adjusted revenue is $5,400.

Calculation: 

Discounted Revenue=Total Revenue−(Total Revenue×Discount Percentage)

Discounted Revenue=6,000−(6,000×0.10)=5,400

📈 Practical Application

• Implement a tiered discount structure based on purchase volume. For example, offer a:
  • 5% discount for purchases between 20 and 50 licenses
  • 10% discount for purchases between 51 and 100 licenses
  • 15% discount for purchases over 100 licenses
  • By integrating this tiered discounting into your forecast, you can see the impact of different purchase volumes on your revenue, allowing you to set more accurate financial targets and understand how various discount levels influence your overall sales strategy.
• Conduct a sensitivity analysis to understand the effects of discount variations on your financial health. Create different scenarios in your forecast with varying discount percentages, such as 5%, 10%, and 15%. Analyze how these changes impact your ARPA, MRR, and overall revenue. This approach helps you prepare for different market conditions and customer behaviors, enabling you to make informed decisions about your discount strategies and adjust them as needed to maintain financial stability.

📞 Need help setting up your discounting forecasts? Give the JHMG team a shout. 

💼 Managing Operating Expenses to Streamline Costs

Lastly, let’s talk about operating expenses in your forecasting process. Accurate categorization of costs—monthly, yearly, as-needed, or usage-based—is essential for a reliable financial forecast. 

Start by listing each item and its cost. For example, a monthly seat-based cost for 13 employees at $100 per seat totals $1,300 monthly or $15,600 annually. This categorization helps forecast expenses accurately, ensuring your budget reflects accurate financial obligations, identifies cost-saving opportunities, and optimizes resource allocation. Additionally, it aids in cash flow management by providing clear insights into significant expense timings. 

NOTE: When entering costs into the worksheet, be mindful of maintaining the formulas. If you delete or change an entry, you might need to recopy the formula to ensure accurate calculations. This ensures your yearly and monthly totals reflect true operating costs.

💰 Practical Application

• Implement a detailed cost-tracking system. Use accounting software to categorize expenses automatically, ensuring all costs are correctly classified as monthly, yearly, as-needed, or usage-based. 

For example, set up your accounting software to flag recurring monthly costs like software subscriptions or seat-based licenses and categorize annual expenses such as insurance premiums or annual software licenses. This automated system helps maintain accuracy and saves time by reducing manual entry errors, making it easier to monitor and adjust your budget as needed.

Examples of accounting software that can help with this include:

• QuickBooks: Known for its intuitive interface, detailed expense categorization, and automated tracking of recurring costs.
• Zoho Books: Part of the larger Zoho suite, it offers robust accounting features and seamless integration with other Zoho products.
• Xero: Offers comprehensive expense tracking features and integrates well with various other business tools, making it ideal for small to medium-sized businesses.
• Conduct regular expense audits. Schedule quarterly reviews of all operating expenses to identify any discrepancies, redundant costs, or areas where you can optimize spending. For example, review your utilities, office supplies, and travel expenses to see if there are opportunities for cost savings or more favorable contracts. By consistently auditing expenses, you can ensure that your financial forecast remains accurate and reflects the true cost of operating your business, helping you make informed decisions about where to allocate resources most effectively.

🏁 Wrapping Up Your SaaS Forecasting Journey

And that’s it! Congratulations on reaching the end of our SaaS Forecast Readiness walkthrough! By diligently filling out each section, you have laid a solid foundation for a robust and accurate SaaS forecast, allowing to you anticipate future revenue and expenses while driving your business forward.

As you continue to refine your SaaS forecast, remember that this is a dynamic process. So remember to review and update your assumptions, costs, and projections regularly to reflect changes in your business environment!

🤔 Reflect on these key points:

• Customer insights: Understanding your customer segments deeply ensures your product and marketing strategies align perfectly with their needs.
• Revenue optimization: Regularly reassessing your pricing strategies and sales mix helps in maximizing revenue and identifying new growth opportunities.
• Cost management: Detailed tracking of acquisition costs, operating expenses, and payroll ensures financial health and operational efficiency.
• Strategic planning: Properly planned discounting and seasonality adjustments can significantly impact your bottom line, providing a more accurate financial picture.

Lastly, remember that forecasting is not just about predicting numbers but about understanding the underlying dynamics of your business. It’s a tool to help you make better strategic decisions, align your team with your vision, and, ultimately, achieve your business goals.

Also, if you have any questions or need further assistance, don’t hesitate to contact the JHMG SaaS Consulting Team.