The free SAAS forecast template is built using google sheets and focuses on all of the aspects that leaders will need to create a business forecast centered around software as a service (SAAS). The SAAS forecast focuses on monthly recurring revenue (MRR). MRR is the difference between a services business and a subscription business in which the subscription business sells a product that (if good) will be paid for every month for the next x amount of years. The benefit of a subscription business is that if you stop selling tomorrow, you will continue to have revenue in the following months.
In the below, we provide detailed instructions on how to use the SAAS forecast template while also addressing the above key measures.
Inputs & Assumptions Tab – The Control Center
In all of our forecast templates, we’ve added an Inputs & Assumptions tab in which the whole forecast is controlled. That’s right you can update the entire forecast from one easy to use tab.
There are 4 main sections of the inputs and assumptions tab:
- Monthly Recurring Revenue (MRR)
- Hiring Planning
- Year 2-5 Planning
The MRR forecast is the most important piece of your financial forecast. If you are pre-revenue then you need to have a very clear understanding of how you are going to get to your goals and its best to back those assumptions up by other examples, saying another competitor did x.
To forecast year 1 MRR, add in the year 1 goal. The model is set to a default of $500,000. Add in the estimated quota for the sales rep. Add in the number of months that it takes a sales rep to ramp. Normally new hires take 3-6 months to be able to bring in a full quota which is what we call ramp. Add in the attrition of your sales team. The final piece to calculating a proper MRR is your churn. Churn is calculated in this forecast as the percent of the MRR that you will lose every month. On average companies have 0-1% MRR churn.
You can review your revenue assumptions on the Financial Statements tab in row 6. If you need to adjust how your revenue ramps over the course of the first year you can do so on the inputs & assumptions tab in cells S32-AD32 which is defaulted to a linear ramp.
If you are a SAAS startup, it is likely that most of your costs are going to come from new hires. It’s important to understand how many people you will need to both bring in revenue and build out your product.
There are two parts to the hiring planning section, first is the headcount needed to sell your product. This is automatically calculated based on your revenue assumptions. Go ahead and play around with the revenue assumptions and see how that changes your headcount assumptions.
The second part of hiring planning is what we call the “indirect headcount” so this is your R&D, G&A, Marketing, etc. We’ve simplified this section of headcount planning to just be a ratio of production. In the Inputs & Assumptions tab, in cells C35-C43 input the average monthly salaries and in cells E36-E43 input the ratios of how many G&A to production headcount you will have.
There are two pieces to expenses on the P&L. First and most important for raising venture capital is Cost of Goods Sold (COGS) which is, in essence, the variable cost of selling your product. Think about it as if you didn’t spend that money would your sales go away? This is an important measure for a VC as the margin between Revenue and COGS is the profitability measure VC’s use.
The second expense is your operating expenses or overhead. These are fixed expenses associated with growing a business including rent, accounting, legal, etc.
Cost of Goods Sold
In the inputs & assumptions tab, we’ve set up the COGS, to be made up of 3 parts including hosting, customer care and other. From a GAAP (generally accepted accounting principles) perspective, you do not need to add sales or marketing to your COGS. It is accepted that your revenue will “remain” whether you sell more in the next month or not. Most SAAS product doesn’t exist without web hosting which should be accounted for as a COGS. If you are at the point of having a customer success team then it is generally accepted that this team should be included in your COGS as they are a big factor in maintaining your MRR.
Operating expenses are classified as fixed expenses or overhead expenses. Think rent, other hires, software, etc. In cells C46-C53 you can input costs including rent, software, G&A per headcount and income tax.
The year one forecast should be coming together. Play with the assumptions and think about those assumptions as levers to either increase revenue or reduce costs.
Year 2 – 5 Forecast
The year 2-5 forecast is important for venture capitalists as they need to understand how you are going to scale your business. It is also a quick view of your perception of your market size. Input year over year revenue growth and add the number of sr. managers to complete section.