How to Build a SaaS Financial Model in 7 Steps: 2024 Guide

A SaaS financial model is a spreadsheet based on past data about a startup and a set of assumptions. It’s used to forecast a SaaS startup’s financials, such as recurring revenue, churn, expenses, etc. Every business has a good use for a financial model template unless the owner isn’t aware. In this post, we’ll learn how to build a SaaS financial model for startups and established businesses alike.

Why SaaS Startups Need a Financial Model

SaaS startups and businesses have many KPIs (key performance indicators) that influence finance decisions, helping to mitigate risks, raise investment capital, price new products or services, etc.

A SaaS financial model provides information on these KPIs, including the following:

• Monthly Unique Visitors
• Product-Qualified Leads (PQLs)
• Viral Coefficient
• Conversion Rate to Customer
• Customer Retention Rate
• Monthly Recurring Revenue (MRR)
• Number of Support Tickets Created
• Average Resolution Time
• Customer Acquisition Cost (CAC)
• Net Promoter Score (NPS)
• Number of Active Users
• Churn Rate
• Organic vs. Paid Traffic ROI
• Customer Lifetime Value (LTV)
• Qualified Lead Velocity Rate (LVR)
• Product Signups
• Average First Response Time

How to Build a SaaS Financial Model in 7 Steps

You should build a large SaaS financial model covering much of what you can learn about your business. The design should be modular, meaning it should contain several smallar models that are interlinked and can exist independently. Also, build your model such that you needn’t change its underlying structure or fundamentals when working with different data sets — this will save you time building new financial models for every forecast and help your SaaS financing campaigns.

In summary, here’s how to build a SaaS financial model from scratch in seven simple steps:

1. Collect all necessary business data.
2. Build a three-statement financial model.
3. Form a problem statement (what it forecasts).
4. Decide who the model is for.
5. Specify what drives your forecast.
6. Sketch a rough layout for inputs, processing, and output.
7. Decide how to display the results.

If you don’t want to go through these steps, you can download our SaaS financial model template and use it to build any forecast about your business.

1. Collect all necessary business data.

Every financial model needs data for the input sections; there’s no financial model without accurate data. A SaaS startup without sufficient records would have to derive these data from market research and logical assumptions. However, you’ll need to improve the model as real data becomes available over time.

2. Build a three-statement financial model.

The three-statement model is the source that all subsequent models feed into. It’s called a three-statement financial model because it outlines key performance indicators (KPIs) for all kinds of SaaS startups based on three financial statements, including the following:

• The Income statement
• The balance sheet statement
• The cash flow statement

3. Form a problem statement (what it forecasts).

There are many things you’d want to forecast for a SaaS business. Make sure to include all forecasts in your model; otherwise, you’ll be forced to build new ones after completing your main design. You can design models forecasting subscriptions, recurring revenue, churn, signups, conversions, website visits, and more.

All these forecasts can be part of a larger model. Anytime you want to forecast churn, you only have to click on or select the churn sub-model. This is why a well-planned layout is critical for an all-encompassing SaaS financial model.

A SaaS financial model in Excel is usually good for such large designs. If you throw things around anyhow in your model, obtaining specific forecasts will be difficult and time-consuming. The model will also be more prone to errors and likely won’t convince investors to put money into your startup. Our fundraising and pitch deck building course offers insights into those parts of a financial model to focus on when seeking investment capital.

4. Decide who the model is for.

Models with a collection of different forecasts may be useful to different employees and partners. We’ll explain how below.

Models tracking your ad performance would make more sense to your marketing leader than investors. Even if you design a large, exhaustive model, you must find ways to present only what your audience wants. For example, investors would want to see your SaaS cash flow model, income statement, and balance sheet before investing in your business.

You can send the same all-encompassing model to your advertising manager and accountant but with clear instructions on finding what they’re looking for that’s relevant to their field. So it’s essential to list all who’ll use it and ensure everything they need is in the model, including how or where to find them.

Even if you intend to design a single-forecast model, it’s crucial to map out all its users, what they need, and what calculations or vocabulary they can understand. This will save you the trouble of educating them on these models, making fundamental changes to the model, or even designing a new one whenever you need a SaaS revenue forecasting for your business.

5. Specify what drives your forecast.

No matter your model’s size or complexity, it can’t accurately predict the future. Accuracy isn’t the purpose of a model; its primary goal is to give you a good idea of what will happen in the future. However, for that idea to be good enough for decision-making and pitch deck design, it must be derived from a complete model that uses accurate data and logical assumptions.

A complete model accounts for all critical components or drivers. The best approach is to include only the minimum number of drivers or factors to minimize the size and complexity of your model — this will keep things easy to follow, audit, and update. A minimalist model is easier to use, especially for people who didn’t partake in the model building. 

So, if you want a model that forecasts churn, you need to include the following drivers in your input within a selected timeframe:

• Number of new subscribers
• Number of total subscribers
• Cancelled subscriptions
• Sign ups
• Website visits
• Engagement rate
• Ad performance

6. Sketch a rough layout for inputs, processing, and output.

Sketching a rough layout before building your model will speed up your work and help you avoid errors. It has the same effect as charting an outline for an article. It’ll help to organize and streamline the design process.

This is especially important for a SaaS startup model, which should focus on different outcomes. Our SaaS startup financial model template has the perfect layout because we planned it well before starting to build the template.

All financial models have at least three sections—input, output, and processing—and you must plan them individually. Brainstorming your model’s hierarchy will produce a coherent, easy-to-follow, audit, and complete model. The components of your model should be placed on top of each other such that understanding or populating one simplifies the next.

7. Decide how to display the results.

Will you display calculation results on the same sheet for all forecasts?

Don’t forget that your model may show projections for subscriptions, sign-ups, churn, recurring revenue, etc., simultaneously.

You need to decide whether these results display in the same place or on separate sheets. Mapping different forecasts to different sheets is better for simplicity and clarity. This prevents other results from distracting you while you’re studying one.

Using a SaaS Financial Model Template in Excel

We know that following our guide on building a financial model for SaaS isn’t easy — not that the guide itself is hard to understand, but implementation is the problem, especially if you aren’t a trained financial analyst. On the bright side, you don’t have to master the design skills yourself to use a great SaaS financial model in Microsoft Excel. We have a complete financial model template you can use for all your forecasts — all you have to do is download the template and populate it with your company data to produce your desired result.

Building a SaaS Financial Model in Excel

Microsoft Excel is a popular tool for building SaaS financial models. It’s the business analytical tool with the best capability. Suffice to say, there’s no financial model you can’t build in Excel.

However, it’s more complex than other analytical software tailored to businesses. To build your SaaS financial model in Excel, you must master the software to an advanced level.

Acquiring a certificate in Excel isn’t necessary. All you need is the essential skill of working in Excel and the ability to research formulas and processes.

SaaS Startup Financial Model Template

This template differs from a typical SaaS financial model template because data is typically obtained from secondary sources and assumptions. Many startups don’t have the data to build financial models as they’re still new businesses with hardly any customers. Yet, they need financial models to secure SaaS funding or plan business strategies.

Frequently Asked Questions

What is the 3-statement model for a SaaS company?

The 3-statement model for a SaaS company is a spreadsheet containing three sub-models or statements, including the income statement, balance sheet statement, and cash flow statement. The income statement displays the company’s profits and losses over a specific period; the balance sheet compares the company’s assets to its liabilities (debt and equity); and the cash flow statement maps out the movement of cash in and out of the SaaS business.

What is the financial model of a SaaS company?

The financial model of a SaaS company is a spreadsheet in Microsoft Excel, Google Sheets, and similar applications that forecasts a particular aspect of the business. The financial model of a SaaS company differs from that of traditional businesses due to recurring revenues and churn. This is why a typical SaaS financial model contains several forecasts.

How to do financial projections for SaaS startups?

You can do financial projections for a SaaS startup by using secondary data and logical assumptions. A startup usually doesn’t have sufficient data for a model. Data must be generated or triangulated from outside sources.

How do I start building financial models?

You can start building a financial model by defining the problem it’ll solve and those who’ll use it. You must list all the critical factors that influence the feasibility of the model and find ways to calculate other factors from your raw data.

Conclusion

We hope you now have a good idea of how to build a SaaS financial model. However, this article isn’t intended to teach you everything about building a SaaS financial model; no one can teach you to build a financial model in just one article. So, we’ve prepared a detailed course to groom you into a world-class financial analyst that can build any financial model. You can join the course or download our financial model template with all the instructions and start using this powerful tool in your SaaS business today.

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