It's become almost a dirty word in the SaaS world, often only dusted off when it comes time for that next round of investment. Or just used to keep an eye on how fast the cash is draining out the plughole. Many SaaS forecasts are 'light', allowing a business to get a quick general idea of when they should breakeven, given some standard metrics.
However a forecast (when properly designed with SaaS business models in mind) can be a wonderful asset for your business strategy. A living, breathing model that allows you to really experiment with your business model in an unlimited capacity, and at no cost.
Having a good hard play with a SaaS forecast (you need to get your hands dirty) allows you to intimately know what minuscule changes can have a large scale affect on your businesses expected profit, cash levels and your breakeven point.
There is obvious value in knowing and tracking your key SaaS metrics such as; trial growth rates, conversion rates, and churn rates, which most SaaS businesses do as a matter of course. But many growing SaaS businesses that I speak with do not have a fully detailed SaaS forecast, which truly stuns me.
For if knowing that your churn rate is within the 'healthy' target set for the business is good, knowing what affect a 0.5% increase in churn would have on your monthly subscription revenue in 18 months time is even better. They say 'the devil is in the details' and that is certainly true when it comes to forecasting.
Moving past the ability to see what affect a minor increase/decrease to your SaaS metrics would have on revenue is the ability to really test the waters. What about your price model? Thinking a tweak here or there might make it more attractive.. Or wanting a whole-scale change and not sure which price model to choose? Test them. A good SaaS forecast allows for price model changes, multiple go-to-market strategies and global market expansion. It is flexible, like your SaaS business, and allows you to test and validate your own ideas against potential profit and the ever important cash level.
Now I know more than anything that with emerging SaaS businesses profit is something that comes later, customer validation, viral adoption and a damn good product are high on that list of priorities. All I am saying here is that a good solid SaaS forecast should be there too.
Not an old dry excel spreadsheet with only one view of your business, but a forecast that will support your ideas and dreams for your emerging business. One that allows you deep insights into which small current changes could can steer your ship into smooth or rough waters.
Moving past the fluffy, a good forecast allows you to set hard goals and focus. By allowing you to test out your assumptions and ideas, it makes you choose a price model and implement it. It makes you ensure that churn rate doesn't drop by 0.5%. It means your staff truly understand what affect that 0.5% churn drop means for the business.
It is your measuring stick, not one pulled out of thin air, but validated with data. But still flexible, waiting for your next great idea to be tested.
Amy Walker - Specialist in SaaS Strategy & Business Execution
I work with SaaS companies to develop their key strategies, and assist them to get the right tools in place to be able to execute seamlessly in market. I believe that the only thing preventing a great idea from scaling globally is a clear strategy supported by strong execution.