One of my specializations is SaaS financial models and early-stage modeling is the basis for how I built most templates for this industry. They all center around acquisition, retention, renewal, CLTV, and how to arrive at MRR based on cohort frameworks.
Relevant Templates:
What Does "Early-Stage" Mean for Financial Modeling?
Generally, this means that within a financial model, you must have dynamic start months for various types of subscriber tiers and customer acquisition channels. Also, there must be inputs for pricing adjustment for the first few years. As far as fixed operating expenses, these also need to have dynamic start months for various staffing roles and other overheads that can be adjusted with scale.
The idea is to show how you get customers, retain them, and what scaling looks like. I will have inputs for the average cost per customer per month (server / other COGS) as well as defined fixed cost of goods sold that are adjustable over time to account for things like servers / hosting and other direct costs to maintain a customer account.
Depending on the type of SaaS business, you also need dynamic assumptions for customer service reps (also often hit COGS) and I generally like to tie that to the number of existing customers at month-end against a ratio of the number of customers a single rep can handle. This takes away guessing how many reps you need with changing customer growth assumptions. The same can go for sales reps, depending on the type of SaaS business. Usually B2B is going to have more reliance on ratios for sales directors and account executives and B2C will have more reliance on ratios for customer service reps. They can be a part of both models though. See more in this B2B / B2C SaaS model.
Sticky SaaS KPIs
An early-stage SaaS model needs to have calculations for customer lifetime value, month to pay back acquisition costs, and LTV to CaC ratio. Those metrics are crucial in helping fund new rounds of growth. Investors want to know (or single owners / operators) that they have sticky customers that are valuable once acquired. The above metrics make it easier to understand that. I build a good historical SaaS customer cohort analysis template for CLTV calculations / retention curves as well as an ad spend guide for SaaS businesses.
It is also important to understand potential valuations after 5 years of operations. I typically make the exit value an option to include or not and if 'yes' then a multiple of trailing 12-month revenue is used to arrive at the SaaS valuation.
Negative Churn
For enterprise SaaS businesses, one of the more important pieces of logic to have is contract value increase of retained customers. This helps you see if there is the possibility of negative churn and what must be true to attain that. Negative churn just means the revenue increase from customers that stay is greater than the money lost from customers that leave. This is an indication of low churn and healthy customers.
What is an Early-Stage SaaS Business?
An early-stage Software as a Service (SaaS) business typically refers to a company that is in the initial phases of its operation. At this stage, the business is focused on developing its core software product that will be delivered over the internet. Here are some key characteristics of an early-stage SaaS business:
Product Development: The company's main focus is on product development, which includes designing, building, and iterating the software. This involves establishing a minimum viable product (MVP) that includes the most essential features that early customers can use.
Market Validation: Early-stage SaaS companies seek to validate their market fit. This means they are testing their product with initial users to gather feedback, understand customer needs, and confirm that there is a demand for their software.
Building a Customer Base: The business will be concentrated on acquiring its first customers. These early customers are crucial for providing feedback and helping to refine the product.
Funding: Funding for early-stage SaaS businesses may come from a variety of sources such as personal savings, friends and family, angel investors, or seed venture capital rounds. The company may not be profitable yet and is often in a pre-revenue or early-revenue stage.
Team Composition: The team is likely small, with members wearing multiple hats. The founding team typically includes individuals with expertise in software development, business strategy, and sales or marketing.
Business Model: The company is developing its business model, which typically includes subscription-based pricing. The pricing strategy and revenue model may still be in a testing phase to find the best fit for the market.
Technology and Infrastructure: Early-stage SaaS companies invest in building a reliable and scalable technology infrastructure that can support the software application. This might include utilizing cloud services, implementing cybersecurity measures, and setting up customer support systems.
Growth Strategies: Strategies for growth are being planned and executed. This could involve inbound marketing, content marketing, partnerships, and other growth hacking techniques to increase user acquisition.
Legal and Compliance: The business is establishing its legal structure, such as incorporating as an LLC or corporation, and ensuring it complies with relevant laws and regulations, particularly those related to data protection and privacy if the software handles customer data.
Culture and Vision: The founders are also focused on building a company culture and vision that can attract talent and define the company's identity and values as it grows.
An early-stage SaaS company is a dynamic environment where the focus is on moving from concept to product to market fit, and then to scaling the business. The challenges are significant, but the potential for growth is considerable given the scalable nature of the SaaS model.
