Scaling a SaaS business demands precise revenue forecasting to anticipate cash flow, inform strategic decisions, and align stakeholders. Excel automation tools and FP&A software are often used among business leaders to streamline financial planning and SaaS forecasting.
However, that process isn’t always fast nor easy so many finance teams maintain their business forecasting and planning on spreadsheets. Studies examining 35 years of spreadsheet usage found that 94% of financial spreadsheets contain errors, creating substantial risks for organizations dependent on accurate projections.
What is SaaS Revenue Forecasting?
Measuring and predicting subscription-based income is critical for planning recurring revenue streams and ensuring your business stays on a healthy growth trajectory. By closely analyzing factors like churn, expansions, and customer acquisition, finance teams can allocate resources more effectively and drive strategic decision-making.
The old-fashioned 30-tab model with a crazy assumption buried somewhere in a spreadsheet isn’t likely to be enough for most companies in the near future. Thus, as an FP&A Manager or finance professional, you need to keep up with the latest FP&A trends, so your entire team can continue revamping and evolving your business’ financial planning practices.
Common Challenges in SaaS Revenue Forecasting
Challenge | Description |
|---|---|
Churn | Erodes recurring revenue, especially if not tracked and addressed quickly. |
Inconsistent data | Multiple data sources create confusion and make it difficult to maintain a single source of truth for financial projections. |
Cross-functional misalignment | Lack of alignment between sales, marketing, and product teams complicates forecasting and leads to inefficiencies and missed targets. |
Is There a Difference Between SaaS Financial Forecasting and Revenue Forecasting?
Financial forecasting is an overarching term that covers several sectors and includes different types of forecasting, such as sales forecasting, revenue forecasting, and cash flow forecasting, which are all used when creating SaaS financial plans to help companies set clear objectives.
A financial forecast is an estimation of future financial outcomes. These outcomes can help define a company budget and plan for generating future revenue. Just like any other company, SaaS businesses use financial modeling and SaaS forecasting to predict future recurring revenue, gain better insights on managing cash flows, and create more accurate business plans.
If you're still using spreadsheets and want to keep it real with SaaS forecasting strategies, here are the methods you need to set accurate forecasts:
Methods of SaaS Revenue Forecasting
Time Series Analysis
Time series forecasting relies on historical trends in metrics like MRR, churn, and customer acquisition. By analyzing past data, finance teams can project likely future outcomes under stable conditions.
Sales Pipeline & Funnel-based Forecasting
This approach evaluates the stages of your sales funnel to estimate future conversions. By factoring in lead-to-opportunity and opportunity-to-close rates, you can gauge monthly or quarterly revenue.
Causal/Event-Driven Forecasting
In this method, external or internal events—such as marketing campaigns or product launches—drive revenue projections. It can provide a nuanced view that typical historical-based models might miss.
KISS: Keep It Simple Stupid
Show intermediate calculations for easy review. Long formulas are no longer necessary.
Aim for using variables you can control (e.g. marketing spend or sales team to drive monthly revenue), not external factors (e.g. market growth).
If you must use Lookup functions, use Tables for easy referencing.
Aim to be directionally correct: 80% right today vs. 100% right two days late.
Keep your assumptions and dashboards in one place for easy scenario testing.
Don’t go crazy with scenario modeling. Stick to the tried and true Base case, Optimistic case, and Down case.
Ask yourself—can I explain this to an investor within 5 minutes? If not, then it's too complicated.
Collaborate: No one wants to do it alone
Create a clear workflow (i.e. roles & responsibilities) with the different departments and stakeholders so you can improve your forecast accuracy.
Have a forecasting tool or method to enable cross-department insights. You've got the unique privilege of seeing the whole picture.
Use separate workbooks for different business units so you can share without needing to separate tabs.
Create shared inboxes or groups.
Eventually, as your SaaS startup continues to grow, your spreadsheets will get out of hand, and in your revenue forecast, future cash flow projections, and sales process, you'll begin to feel the need for SaaS budgeting and forecasting software.
Even though you can stretch the mileage of spreadsheets with queries, macros, Power BI, or AppSheets, it’s not a forever solution. You end up with just a few people who can actually operate your SaaS business models, and it’s not really scalable or user-friendly.
How to Transform Your SaaS Forecasting Process
Excel may seem like the perfect solution to handle all your SaaS forecasting capabilities. However, if you're truly trying to grow and scale your business, spreadsheets will only add manual processes and slow you down.
Instead, you can integrate FP&A software that’s adaptive, intuitive, and customizable to your company’s unique needs. So, how do you find a SaaS FP&A software robust enough to manage all your SaaS financial forecasting needs?
Abacum is a collaborative FP&A solution that’s changing the way startup teams do their financial modeling and qualitative forecasting. Instead of sifting through endless Excel spreadsheets to create a single financial model, our FP&A software serves as a centralized hub for all things Finance, letting CFOs create more accurate forecasting and faster models.
If you're a SaaS company looking to modernize your revenue model, financial budgeting process, and cash flow forecasting, our platform is the perfect solution.
With Abacum, we're empowering finance teams of high-growth tech companies to become true strategic partners in their organization by driving time-to-insight with powerful automation and seamless collaboration.
Key Takeaways for SaaS Revenue Forecasting
Consistently track core metrics like MRR, churn, and CAC to maintain an accurate view of your business. Use real-time data to update forecasts and apply best practices, such as collaborative planning and scenario modeling, to reduce errors and align teams.
Ready to level up your SaaS revenue forecasting?
See how Abacum can help streamline your processes and provide real-time insights. Request a demo now to see the product live and start your transformational journey.
