The QuickBooks SaaS Story: Can You Relate?

You’ve been there, right? Your QuickBooks instance was doing just fine in your company’s infancy. But now you’ve got hundreds of customers, and the FinOps debt is piling up.

While QuickBooks was initially a great option for your business, you now need to support more complex financial operations and reporting functions. QuickBooks wasn’t built for B2B SaaS or subscription-based businesses, so finance teams create complicated workarounds to make it viable. At some point, your team has to admit it’s just not a good option and begin looking at an ERP, which is a necessary move. That process often looks something like this:

We know exactly how disruptive moving to an ERP can be for a SaaS business. While it may be the best next step at some point, that doesn’t make it the best next step today.

In this post, we’ll help you understand if now is really the best time for you to transition to an ERP, and if it’s not, how Maxio can help you extend the life of your QuickBooks account instead.

5 Signs You’re Outgrowing QuickBooks

Unfortunately, there’s no silver bullet for knowing exactly when to call it quits with QuickBooks. Some might say it’s after you reach a certain ARR or employee count threshold. But in reality, the life of QuickBooks has less to do with how much ARR you’re managing and more to do with how sophisticated your business operations are. 

For example, QuickBooks wasn’t built to manage subscription revenue and recurring billing, especially if you have sales-negotiated contracts. It also doesn’t provide all the essential SaaS metrics and analytics necessary to manage, grow, and retain customers or connect with customer relationship management (CRM) systems. All of these challenges add up to make life pretty difficult in the back office. 

While there’s not a single moment you can point to, here are a few signs that you may be reaching the end of your QuickBooks lifecycle.

Your board is pressuring you to switch to a subscription model.


Once your company acquires enough customers to prove product-market fit, your board starts to pressure you to adopt a subscription model. Subscriptions mean recurring revenue streams for the business. This is good for you and good for the board, but it’s going to be a nightmare for invoicing in QuickBooks. 

QuickBooks wasn’t built for subscription businesses. “Recurring transactions” is the closest thing it has to a recurring billing function, but that’s like using a band-aid when you need stitches. 

To fill in the gaps, you rely on a spreadsheet for invoice scheduling and visibility into cash flow. However, invoicing is often missed, late, or incorrect. Additionally, late invoices tend to negatively impact cash flow.


Maxio simplifies your recurring billing so invoices are fully managed and scheduled when a contract is won. This ensures invoices go out on time and provides you with the visibility you need into your business’s health. 

With Maxio, you can: 

  • Process orders 
  • Manage renewals and invoices 
  • Manage upgrades, add-ons, and extensions 
  • Create custom invoice themes 
  • Include subscription dates in line-item descriptions 
  • Calculate sales tax 

With our complete dunning and collections function, you can also reduce Days Sales Outstanding (DSO) to maximize cash flow.

Investors are asking for metrics you can’t produce.


You won’t find subscription metrics in QuickBooks. Without the ability to dig into MRR, ARR, churn and retention (logo and dollar), and customer lifetime value (CLV) within your billing/invoicing engine, SaaS businesses must use spreadsheets to compensate again. 

While QuickBooks does provide basic general ledger functionality, that alone isn’t enough for a SaaS business. Some businesses will try to force a CRM like Salesforce to provide SaaS metrics like MRR or ARR, but these quickly get out of sync with numbers tracked by the finance team. 

It’s one thing to go back and forth internally over how you arrived at a certain number. It’s another thing entirely to have the same discussion in front of potential investors or, worse, have a potential investor call out an inconsistency. Shaky SaaS metrics erode investor trust and call into question the integrity of your financial operations. If you have this problem, it’s not a matter of if but when you need to level up from operating in just QuickBooks alone.


The Maxio analytics engine is the most optimized subscription analytics engine in the market, delivering accurate and real-time insight into all of your key SaaS metrics, including MRR, ARR, dollar churn and retention, logo churn and retention, subscription momentum, cohorts, CLV, and more.

Because these metrics are built from the same financial transactions that generate your GAAP revenue and invoicing, they’re the most accurate subscription analytics you can get.

You’ve started color-coding your spreadsheets.


You need contracts, invoices, and revenue recognition schedules to produce GAAP-compliant revenue reports and correct deferred revenue. But QuickBooks wasn’t built to handle recurring invoicing (at least not well). 

As a workaround, you’re likely augmenting the work in Excel. However, as you acquire more customers and introduce more complicated sales-negotiated contracts, the spreadsheet starts to take on a life of its own. You’re left with a color-coded mess filled with complex formulas and error messages.


Maxio manages your revenue and invoicing schedules, contracts, and transactions. It also reports the revenue and deferred revenue you need to stay GAAP compliant. Tightly integrated with QuickBooks, Maxio records and reports on all key revenue numbers, so you don’t waste time and energy wrangling with spreadsheets or worrying about data inaccuracies. Built-in revenue integrity checks ensure you won’t overreport or underreport. You’ll know immediately if numbers are out of balance.

Finance, sales, and customer success data are scattered across systems.


QuickBooks doesn’t integrate well with Salesforce and other CRMs if at all, which forces your team to manage customers and orders in a separate system that isn’t connected to your financial systems. That means sales teams who work exclusively in a CRM will see ARR, MRR, churn, retention, and other metrics that don’t align with the accurate picture produced by the finance team. 

This causes you to spend too much time and energy trying to get your team on the same page with a shared understanding of performance against your key business metrics.


Maxio bridges the gaps between finance, sales, and customer success teams with a single source of truth. This is critical for upgrades and expansion opportunities, renewals, ongoing account management, and updating sales teams on payment and invoice status for commission insights. Our direct integrations with CRMs such as Salesforce, HubSpot, and Pipedrive close the gap between sales, finance, and customer success teams by providing a standard view of each customer’s orders, contracts, transactions, invoices, payments, and renewals. 

With Maxio, you can close an opportunity in your CRM and book it in Maxio with complete revenue schedules, analytics data, and invoicing. In seconds, you can fully automate the process or insert a finance checkpoint to approve orders, from closed business to emailed invoices.

You’re overly protective of your spreadsheet.


There are many things to take obsessive ownership of in a growing SaaS business: company culture, the go-to-market strategy, and even coffee. But only desperation and nightmares of broken formulas can drive you to slap the hand of anyone who dares touch your sacred spreadsheet. You know your energy is better spent elsewhere, but the headache of possibly breaking your spreadsheet has caused you to impose maximum-security permissions. 

With all these disconnected, moving parts, it’s easy to see how and why QuickBooks and spreadsheets get out of sync. When this happens, it’s often a “silent failure.” Silent failures are the scourge of finance teams because they often go undetected. When finally detected, they cost hours to track down, diagnose the root cause, and fix. Over a year, this adds up to a tremendous amount of wasted time and money. 

When uncovered during an audit or due diligence, your credibility can be damaged; worse, you may see adjustments to valuations and deal terms.


Maxio performs constant data checks to minimize risk and ensure: 

Contract Value = Revenues Scheduled = Invoices Scheduled 

These checks are in place to help you recognize all the revenue you’re entitled to recognize and invoice for all of the contract elements you are entitled to invoice. You receive an immediate alert if any of these values fall out of balance. 

Moving from manual processes to automation with Maxio means you won’t miss renewals/invoices or incorrectly recognize revenue, which could jeopardize your enterprise value.

Practical Reasons to Extend the Life of QuickBooks

With all these headaches, why do we suggest implementing a financial operations tool rather than moving to an ERP like Intacct or NetSuite? It’s not just because we’re big fans of Maxio. (Although, there is that.) There are many practical reasons to avoid adopting an ERP too early in your growth cycle.

It’s expensive.

The license fees for ERP solutions are costly and typically require a multi-year commitment. It wouldn’t be outlandish to estimate that a large ERP, like Intacct or Netsuite, will cost you upwards of $100,000 annually. If you can delay the adoption of an ERP for just 3 years, that’s $300,000 in cost savings.

There’s a lengthy implementation time.

Depending on your stage of growth, implementing an ERP can be time consuming, typically taking 4 – 12 months. It is often necessary to work with one of their third-party professional services partners.

It’s disruptive.

Implementing an ERP successfully requires a dedicated full-time employee to oversee the process and another to maintain day-to-day operations. However, for growing B2B SaaS businesses, resources are often prioritized for engineering, sales, and marketing over finance and administration. It’s unlikely your finance team has the extra capacity to manage the business and make all the necessary business process and configuration decisions in a timely manner.

Why Not Extend the Life of QuickBooks by Supplementing with Spreadsheets?

There are several challenges with managing your subscription SaaS business with QuickBooks. 

One challenge you’ll encounter is problems invoicing for subscriptions in QuickBooks. While QuickBooks has a recurring billing function, it can’t handle recurring invoices with variable amounts, a cornerstone of subscription SaaS businesses. Without managing this directly in QuickBooks, you’ll have to create a separate tab in your spreadsheet for invoicing schedules. 

If you have a complicated invoicing schedule, you’ll have to set calendar reminders so you don’t forget to send out invoices. If you miss one and forget to send an invoice, you’ll effectively “lose” ARR due to a simple, clerical error. 

Your system will be highly susceptible to human error once you augment your work in QuickBooks with spreadsheets. Because you’re manually completing journal entries in QuickBooks from rev rec schedules in your spreadsheet, a simple contract change can wreak serious havoc downstream when it comes time to close your books. 

Finally, you’ll still be accountable for producing SaaS metrics, even if those aren’t readily available in QuickBooks. Perhaps you can create yet another tab in your spreadsheet to calculate essential metrics like ARR, CAC, and CLV. 

The problem is that formulas aren’t always applied consistently. Since there’s no governing body for SaaS metrics like there is for GAAP financials, many of these terms are up for interpretation. 

As you can see, supplementing QuickBooks with spreadsheets alone is a largely error-prone process that ultimately opens you up to more risk than it is worth. It’s more of a stop-gap than anything; stop-gaps aren’t solutions.

Extend the Life of QuickBooks with a Subscription Management Platform

With a subscription management solution like Maxio, you can scale your financial operations significantly without the expense of an ERP or the headache of spreadsheets.

According to Jon Cochrane, VP of Strategy at Maxio, “If you want to extend the life of QuickBooks, you need an automated way to bill, collect, and report revenue.” That’s precisely what Maxio is. Maxio is a billing and financial operations platform designed to sit between your CRM and general ledger to streamline financial operations and reporting.”

Maxio’s bi-directional QuickBooks integration eliminates manually updating QuickBooks with Maxio transaction data and mitigates the risk of investors spotting errors in your spreadsheets. Maxio generates rev rec and invoicing schedules from transaction data pulled directly from your CRM. 

You can also automate invoicing directly from Maxio and even set specific parameters for email cadences for A/R management. In terms of reporting, Maxio’ SaaS metric reports use your real transaction data to generate metrics, standardizing the application of formulas and removing speculation about where specific numbers came from. 

Finally, you never have to worry about human-sync errors between your spreadsheets and QuickBooks. Maxio continually scans for discrepancies in your numbers and alerts you when out-of-balance accounts require your attention. 

All in all, adding a billing and financial operations solution to QuickBooks is a fraction of the cost of transitioning to an ERP, and it takes mere weeks to implement rather than months. Moreover, because Maxio integrates with ERPs and smaller ledgers like QuickBooks, you can continue to reap the benefits of Maxio even after you have outgrown QuickBooks once and for all.

When is it Time to Switch to an ERP?

Even though it may not be as soon as you think, there will come a time when you do need to switch to an ERP. More often than not, this has less to do with the size of your company and more to do with the sophistication of your business model. 

One of the most common reasons companies invest in an ERP is the decision to go international and operate that leg of the business as a subsidiary. Once you start introducing multiple entities, it can be challenging to keep everything straight without a more complex system. 

The other primary reason to switch to an ERP is in the event of a merger or acquisition. With multiple companies’ financials being consolidated, the ability to manage more complex data sets becomes crucial. 

These are not the only reasons to switch to an ERP, but they are by far the most common ones. Contrary to popular belief, the main takeaway is that ARR and headcount are not the primary catalysts for switching to an ERP. 

The nice thing about a billing and financial operations solution like Maxio is that it scales with you as you transition to an ERP. Maxio’ integrations with Intacct and NetSuite marries the best of an ERP to the flexibility and SaaS focus of Maxio.

For practical insights and strategies on ERP implementation, check out our blog post on How We Implemented NetSuite in 8 Weeks. This comprehensive case study highlights Maxio’s successful transition and offers valuable tips for your own ERP journey.

Closing Thoughts and Key Takeaways

While switching to an ERP sooner rather than later may be tempting, there’s a substantial financial upside to putting off the transition. Delaying the switch for even a couple of years could mean the difference in hundreds of thousands in cost savings. 

While managing this delay by augmenting key financial operations in spreadsheets has been the norm for most SaaS businesses, this is actually not sustainable due to its high susceptibility to human error. 

A billing and financial operations platform like Maxio can effectively extend the life of QuickBooks for your team without the headache of spreadsheets. Interested in learning more about how Maxio can help you extend the life of QuickBooks at your company? Talk to an expert today, or sign up for a free demo to learn how Maxio can help your business grow.

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Revenue leakage is a silent threat that can significantly impact an organization’s financial health, eroding profit margins and stunting growth. It is the death by a thousand papercuts for an organization. In the more than 20 years that I’ve spent in finance, I’ve seen how imperative addressing revenue leakage is for maintaining financial stability. Understanding revenue leakage and implementing measures to prevent it is crucial for a robust and efficient financial operation. 

This post explores the causes of revenue leakage, from human error to inefficiencies in RevOps, and presents practical solutions to stop it in its tracks, ensuring your organization remains financially healthy and competitive.

What is revenue leakage?

Revenue leakage refers to the unnoticed loss of revenue within an organization due to inefficiencies, errors, or mismanagement in financial processes. It is crucial to distinguish revenue leakage from churn however. Churn represents lost customers while revenue leakage pertains to lost revenue that could have been retained or earned. This phenomenon can significantly erode profit margins and hinder potential revenue growth, making it a critical issue for any business to address. Revenue leakage often results from lost revenue, inefficiencies, and unchecked manual processes, affecting renewals and causing financial loss.

In the competitive world of B2B SaaS, it’s essential to recognize how revenue leakage can impact your business. When revenue that should be earned is lost due to avoidable factors, it  impacts future growth. This revenue loss could have been invested back into the business for product development, marketing, or team expansion. 

The key to combating revenue leakage is understanding its causes and implementing prevention strategies.

What are the causes of revenue leakage?

Several factors contribute to revenue leakage, each posing unique challenges to an organization’s financial stability. Some of the primary causes include:

  • Human error: Simple data entry, billing, and invoicing mistakes can lead to significant revenue losses. These errors are often due to manual processes that are prone to inaccuracies. For example, a misentered invoice amount or an overlooked billing period can result in substantial revenue discrepancies over time. Additionally, relying on spreadsheets for financial data can be problematic, as maintaining their integrity is challenging and errors can easily propagate through various financial processes, leading to further revenue leakage. 
  • Invoicing and billing errors: Incorrect invoicing and billing can result in either underbilling or overbilling customers, leading to disputes and loss of trust, ultimately causing leaks. Ensuring accurate invoices reflect the correct amounts due is essential for maintaining healthy cash flow and customer relationships. 
  • Fraud: Internal and external fraudulent activities can siphon off substantial revenue, often going undetected for extended periods. This can include unauthorized discounts, falsified refunds, or other deceptive practices. 
  • Wrong pricing strategies: Ineffective pricing models and strategies can fail to capture the full value of products or services, leading to lost revenue opportunities. Misaligned pricing can result in undercharging or overcharging customers, hurting both revenue and customer relationships. It’s also important to be flexible in doing business the way customers want or need. 
  • Absence of collection solutions: The lack of dunning and collection tools to enforce contractual payment obligations and bill late fees can further exacerbate finances. Regularly review your pricing models to ensure they align with your business objectives and market conditions.
  • Incomplete data/reporting: Inaccurate or incomplete data reporting can lead to misinformed decisions and financial losses. These issues can undermine the reliability of financial reports and decision-making processes, jeopardizing the organization’s revenue streams. Understanding how to look at your data and pricing from a strategic perspective can provide valuable insights into optimizing revenue.
  • Lack of standardized processes: Inconsistent processes across the organization can lead to inefficiencies and missed revenue opportunities. Variability in procedures can cause confusion, errors, and delays, ultimately affecting the bottom line. Read our guide on billing management to learn more about managing your billing processes effectively.

These issues can manifest in various forms of revenue leakage, affecting billable hours, customer success, and overall customer experience. Consulting firms often find these problems in the first place during audits, where real-time functionality and data entry discrepancies in CRM systems are prevalent.

How to prevent revenue leakage

Preventing revenue leakage involves a strategic approach that includes identifying sources of leakage, optimizing processes, leveraging technology, and managing contracts effectively. By taking these steps, businesses can stop revenue leakage and protect their financial health.

1. Identify sources of revenue leakage

The first step in preventing revenue leakage is reviewing business and financial operations meticulously to pinpoint areas where revenue might be leaking. This involves scrutinizing financial reports, customer data, billing systems, and compliance processes. Consistently evaluating these aspects and keeping current on SaaS billing best practices helps in identifying inconsistencies and taking corrective actions.

Key areas to review for leakage include:

  • Billing systems: Ensure your billing systems are accurate and efficient. Regular audits of billing systems can identify discrepancies and ensure that all billed amounts are correct.
  • Customer data: Maintain up-to-date and accurate customer data to prevent billing errors. Accurate customer data ensures that invoices are sent to the correct recipients and reflect the correct amounts due.
  • Discrepancies in sales team metrics: Monitor sales team performance metrics to identify and address any inconsistencies. Regular reviews of sales metrics can highlight areas where sales processes can be improved to prevent revenue leakage.
  • Forecasting and underbilling: Regularly review forecasting models and ensure accurate billing practices. Accurate forecasting helps predict future revenue and identify potential problem areas.

A practical method to validate and identify sources of leakage is to “staple yourself to an order.” By following an order from Sales to Operations to Accounting and ultimately to cash receipt, you can better identify misalignments within your organization and areas for process improvement. This approach may also reveal professional services that are rendered but never billed to a customer.

2. Create and optimize SOPs

Documented Standard Operating Procedures (SOPs) are vital in preventing revenue leakage. They help regulate processes, promote clarity, and keep everyone on the same page, reducing inconsistencies and aiding in decision-making. Developing and optimizing SOPs involves analyzing current processes, identifying gaps, and taking detailed notes to ensure every step is covered. Organizing the chaos is key to knowing what levers to push or pull to fine-tune your revenue engine.

Benefits of SOPs include:

  • Standardization: Ensure uniformity in processes across the organization. This reduces the chances of errors and ensures that all team members are following the same procedures.
  • Transparency: Make processes clear and understandable for all involved. Transparent processes also help in identifying areas of improvement.
  • Consistency: Reduce errors and inconsistencies in operations. Consistent processes reinforce reliable outcomes.
  • Informed decision making: Establish that decisions are based on accurate and comprehensive information. Well-documented SOPs provide clear guidelines, ensuring that all actions align with your organization’s goals.

Integrating project management tools in different systems can further optimize these processes, creating dependencies that streamline workflows and strengthen the bottom line.

3. Leverage software automation tools

Leveraging automation tools can significantly reduce the risk of revenue leakage by handling complex and repetitive tasks more efficiently. Automation in revenue management provides several benefits, including:

  • Contract lifecycle management: By automating the management of contracts from initiation to renewal, you can reduce errors and ensure compliance. Automated alerts for renewals and compliance checks prevent contracts from slipping through the cracks, ensuring all obligations are met. Having a contract database with key attributes to score the quality and health of a contract is a foundational element to enhance revenue generation. Scoring based on key elements such as cancellation for convenience, multi-year agreements, and contractual price increases allows management to incrementally improve the value of the contracted install base.
  • Recurring billing: Automating billing cycles ensures timely and accurate invoicing. This reduces the chances of missed or incorrect invoices, capturing revenue accurately and on time. Streamlined workflows deliver a clean billing process.
  • Subscription management: Efficiently managing subscriptions reduces the chances of missed renewals and ensures customers are billed correctly. This seamless handling helps maintain a consistent revenue stream.
  • Revenue recognition: Automating revenue recognition processes ensures compliance with accounting standards and overall accuracy. Using revenue recognition software helps recognize revenue in the correct periods, reduce manual errors, and deliver accurate financial statements.
  • Revenue reporting: Automated revenue reporting systems provide real-time insights into revenue performance, aiding in the early detection of issues. Accurate and timely reports enable better decision-making and help identify revenue trends promptly. Having a process and automation that can look at the revenue/billing streams at the 30,000 foot level and identify trends or blips allows for the drilldown to specific customer and invoice line item detail, ensuring gross revenue leakage is identified and corrected.
  • Revenue projections: Automated tools use historical data and analytics to create accurate revenue forecasts. These reliable projections aid in strategic planning, helping set realistic revenue goals and plan for future growth.

Utilizing these tools helps optimize time tracking, streamline revenue management, and minimize the risk of revenue leakage. Integrations with different systems ensure that workflows are smooth and efficient. Automating these processes also reduces the reliance on manual spreadsheets, further reducing errors and improving efficiency.

4. Properly manage and execute contracts

Mismanagement of contracts can lead to significant revenue leakage. Proper renewal management and execution of contracts involve conducting thorough reviews, ensuring all terms are met, and keeping updated records. Implementing a robust contract management system helps prevent leaks by ensuring all terms are adhered to, renewals are timely, and any discrepancies are addressed promptly.

Effective contract management ensures that SaaS revenue leaks are minimized and team members are aligned on revenue generation strategies. Key aspects of proper contract management include:

  • Regular reviews: Regularly reviewing contracts to ensure compliance with terms and conditions. This includes checking for any discrepancies and addressing them promptly.
  • Compliance: Ensuring that all contract terms are adhered to and that any changes are documented and approved. Compliance checks help in ensuring that all contractual obligations are met.
  • Accurate records: Maintaining accurate records of all contracts, including renewals, amendments, and terminations. This assists in tracking contract performance as well as identifying any areas of revenue leakage.

Managing contracts effectively ensures revenue opportunities are maximized and potential revenue leakage is minimized. It also helps in building strong relationships with customers and partners by ensuring that all terms and conditions are met.

Capping revenue leaks strengthens your bottom line

People, processes, and systems working together are the key ingredients to revenue leakage prevention. By identifying and addressing the causes of revenue leakage, optimizing processes through SOPs, leveraging automation tools, and managing contracts effectively, businesses can significantly reduce the risk of revenue loss. Maxio offers comprehensive solutions designed to help B2B SaaS companies tackle revenue leakage head-on, providing advanced billing, subscription management, and more.

In conclusion, revenue leakage is a critical issue that can significantly impact an organization’s financial health. Understanding its causes and implementing effective strategies to stop revenue leakage can help businesses optimize their operations, improve profitability, and achieve sustainable growth. Maxio provides the tools and expertise needed to address revenue leakage and ensure financial stability for B2B SaaS companies.

Learn how Maxio can help your business stop revenue leakage and optimize workflows by exploring our advanced billing and subscription management solutions. Additionally, for a comprehensive guide on managing renewals effectively, visit our page on renewal management.

By taking proactive steps to address revenue leakage, your organization can protect its financial health, maintain customer trust, and support sustainable growth. Don’t let unnoticed revenue leaks undermine your success—start implementing these strategies today and see the positive impact on your bottom line.

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Revenue Recognition Policy Template

Auditors require lots of documentation to ensure accuracy. Having a solid revenue recognition policy in place is the first step toward ensuring compliance.

My stance on the matter of cash vs accrual accounting has evolved. I used to believe cash accounting was sufficient for SaaS businesses with ARR below $3 million. However, I’ve realized this is not the case, and cash accounting for revenue is problematic for almost all SaaS companies.

First, let me acknowledge that cash is what makes a company run. You don’t pay your vendors or employees in revenue, so it’s essential to know your cash flows and project your cash position. That said, cash is noisy and not the best way to build your income statement or track your progress.

Unless your company bills and collects cash monthly, using cash-based revenue recognition generates the following problems.

  1. ARR must be tracked separately and can’t be tied explicitly to the income statement. MRR times 12 does not equal ARR when using cash accounting. SaaS Metrics using ARR or MRR that do not tie back to the financials are more subject to error, take additional time to calculate, and are less trusted by investors or acquirers.
  1. All CAC efficiency metrics rely upon ARR data, so they also need to be calculated on a one-off basis and are not tied to the financial statements. Thus, these metrics suffer from all the issues listed above.
  1. Retention is more challenging to measure accurately with cash accounting. When comparing current to prior year revenue from a cohort of customers (static pool calculation), any billing terms or timing changes will create false churn. In addition, retention numbers will be much more variable month-to-month.
  1. Finally, the business’s growth trajectory is simply harder to gauge with cash accounting. Seasonality in bookings, lumpy bookings, changes in payment terms, and other factors create noise in cash-based revenue, which obscures underlying trends.

When I was underwriting credit decisions at SaaS Capital, I dealt with a wide variety of financial statements across thousands of prospects. Companies using cash accounting always took more time to understand and, almost by definition, had a weaker grasp of their financial performance than those companies who had adopted accrual accounting.

I’m less concerned about the expense side of the equation. Cash accounting for expenses does add noise to profitability and CAC metrics, but those can usually be averaged out. It’s the revenue side that gets distorted.

I’m not an expert, but if you don’t have many customers, GAAP revenue recognition can be done on a spreadsheet. As a business scales, that spreadsheet can get pretty complex and error-prone, and a more robust solution is required.

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B2B Quote-to-Cash Best Practices and Checklist

Immediately improve your order-to-cash process with this step-by-step guide, crafted specifically for B2B SaaS leaders in partnership with Finvisor.

Streamline your Q2C

Streamline your sales workflow and stop revenue leakage with our comprehensive guide. This guide dives deep into the intricacies of the order-to-cash process, offering a blend of checklists and best practices crucial for streamlining operations, enhancing efficiency, and driving revenue growth in your B2B SaaS company. Whether you’re a new or established company, this guide was designed to help you create an airtight quote-to-cash process for your business.

Key benefits:

  • Tailored for B2B SaaS. All recommendations and best practices are specifically designed to meet the unique needs of SaaS business models.
  • Actionable checklist. This isn’t just strategy. Included are step-by-step actions to refine and perfect your quote-to-cash process.
  • Software recommendations. The guide includes software recommendations tailored to each stage of the customer journey, ensuring you have the right tool for every task.
  • Proven best practices. With insights developed through industry expertise, this guide will ensure you avoid common pitfalls and drive operational success.
  • Expert insights. Discover proven strategies for data alignment, sales operations, billing automation, and customer success that can help you optimize your quote-to-cash process and achieve sustainable growth.

Ready to elevate your financial operations? Download this guide and start making strategic improvements to your quote-to-cash process today!

Revenue modeling. It’s the most difficult aspect of financial planning, especially for startups that don’t have historical data to extrapolate future revenues. If you’re new to the software-as-a-service (SaaS) space, you may be wondering what the differences are between revenue modeling for subscription businesses as opposed to non-subscription companies. 

In this post, we’ll outline the two primary differences between revenue modeling for each type of business model.  

The primary differences between revenue modeling for a subscription SaaS business model vs. non-subscription business are how revenue is recognized over time vs. up-front and how your billings will affect your balance in deferred revenue. 

Revenue modeling: revenue growth over time

For non-subscription businesses, future revenue is unknown because it depends on future sales that have not yet occurred. This can cause major headaches when trying to estimate future revenue and cash flows. Non-subscription businesses often do not have an associated term; therefore, revenue is recognized on the date of sale.  

See the following example:  

Revenue Modeling_Non-Sub Based Revenue

By contrast, most SaaS solutions sell subscriptions with a start and end date, and revenue is recognized over the stated term. There are also several different types of pricing strategies that you need to consider before building a SaaS revenue model. For example, a single SaaS company may offer a freemium model, a flat-rate monthly subscription, and custom sales-negotiated pricing across their different product offerings.

However, modeling revenue in a SaaS business comes with its own set of upsides too.

For instance, it’s easier to forecast future revenue in a SaaS business because the future revenue recognition is known on the date of sale.  See the following example: 

Revenue Modeling_Sub Based Revenue

When modeling revenues for subscription-based businesses, think of the layers of a cake. Your Total ARR number is the entire cake, but you need to understand how that revenue grows over time, i.e., the cake layers that make up the whole. That growth is measured as follows: 

New business: Number of new customers*Average ARR

Expansion: Growth from existing customers, including upgrades, price increases, users or products added

Contraction: Declines in business from existing and continuing customers, including downgrades, price decreases, fewer users or products 

Churn: Loss of existing customers 

Revenue modeling: deferred revenue 

Deferred revenue is an accounting principle related to the accrual method we talked about before. Deferred revenue is revenue that you can’t recognize just yet because the service hasn’t yet been performed. 

In non-subscription businesses, sales are transactional, so revenue is recognized immediately. There is no need to defer revenue recognition because all revenue is recognized as soon as it occurs. See the following example: 

Revenue Modeling_Non-Sub Based Deferred

In subscription businesses, by contrast, the service is performed over a period of time; therefore, revenue is recognized bit by bit over the duration of the term. As the term goes on, your revenue goes up, and your deferred revenue balance goes down. This is important for reporting purposes because deferred revenue is recorded as a liability on your balance sheet. 

Revenue Modeling_Sub Based Deferred Revenue

The equation becomes more calculated when you factor in billing frequencies. At many SaaS companies, customers are billed all up-front to simplify things. After all, it’s always better to have cash-in-hand sooner rather than later. 

However, for companies where that’s not possible, billing frequencies have a huge impact on the cash runway, something that’s essential to budgeting for business operations and reporting to potential investors.

8 common pricing and revenue models found in SaaS businesses

There’s no one-size-fits-all revenue model for SaaS companies. Instead, most software businesses use multiple revenue models to fully represent the value provided by their tools and services. It’s also equally important to choose the correct pricing model for your business as this is what will be responsible for capturing the value.

Choosing the right mix of revenue and pricing models can put your company in the perfect position for revenue growth and stickiness. But on the flip side of that coin, if you choose a pricing model that doesn’t align with the unique value your company provides, you could experience huge revenue leaks and missed opportunities.

In this section, we’ll explore the eight revenue and pricing models that SaaS businesses frequently use to strike that perfect balance between value provided and revenue generated. You may even consider using one of the following models in your own business.

1. Subscription model

The subscription model involves charging a recurring flat fee, usually monthly or annually, for access to a SaaS product. It’s also the model people typically associate with the popular SaaS tools. Under this model, customers pay a recurring subscription to continually use a software tool or platform on a month-to-month basis.

How It Works

In the subscription model, users pay a flat monthly rate to access the core feature of a SaaS product — this doesn’t include any add-ons or additional models. These subscriptions can also be tiered to feature limits, number of users per account, usage capacities, or other levers to justify a fixed monthly rate. As a result, this model lends itself well to both business and consumer use cases.

Pros and Cons

The subscription model provides predictable recurring revenue streams by design. This is because it incentivizes software providers to focus on improving customer relationships to ensure they continue paying for software access each month. Offering customers discounts for annual commitments or multi-year terms is another big perk of this model, as it allows business leaders to increase their customer lifetime value and forecast future revenues more easily.

On the flip side, companies also run the risk of customer churn on a monthly basis under this model. But overall, monthly subscriptions are a staple SaaS monetization strategy, and they’re not likely to disappear anytime soon.

2. Usage-based model

Unlike flat-rate subscriptions, the usage-based model prices access to SaaS products based on actual volumes consumed. In other words, customers pay precisely for what they utilize rather than bundling a set amount of features or models into a single subscription tier.

How It Works

In usage-based pricing, certain SaaS metrics are used to measure how customers are charged for their usage — metrics like:

  • API calls made
  • Data storage space used
  • Computing power leveraged
  • Data transfer volumes

…drive incremental usage charges.

This model also gives customers better bang for their buck based on their usage of a SaaS product — lower utilization customers pay less, while higher activity ones pay more.

Pros and Cons

Usage-based pricing aligns costs very closely to the value delivered per customer. This is because companies only need to pay for the precise resources their customers are using at any given time — generally speaking, at least. 

However, there are some challenges that still exist within this model. 

For instance, spiky or volatile usage across a customer base can make it difficult to accurately forecast revenue throughout the year. Additionally, other variables like seasonality and swings in the market can impact a company’s bottom line unexpectedly if they’re solely operating under a usage-based pricing model.

3. Per-user model

Next up on the list is the per-user pricing model. The per-user approach charges subscription fees based on the number of individual user accounts on a SaaS platform (e.g. number of employee licenses or seats on Zoom, Slack, etc.).

How It Works

Per-user pricing aligns directly with the number of employees or end users that need access to the software tool in question. Typical pricing includes:

  • $5 per user per month
  • $50 per user per year
  • Volume discounts at tier levels like 10, 25, 50+ users

Pros and Cons

Charging per user allows companies to scale their tech stack costs in direct proportion to the number of users in their organization who need access to these tools. This means that small teams typically pay less, while larger companies using a greater number of licenses will pay more. 

However, the “per user” approach discourages account sharing behaviors as it can lead to unwanted revenue leakage for software vendors. Similarly, per user pricing also makes it more difficult to forecast future revenues when compared to a less volatile pricing model like flat-rate pricing.

4. Transaction fee model

Unlike fixed or consumption-based pricing, transaction fee models charge a small percentage based on activity volumes like payments or shipments handled within a SaaS platform.

How It Works

Most transaction fee models work by taking a small cut of volumes transacted through a SaaS platform. These fees can be based on different variables such as:

  • Payments processed
  • Subscriptions billed
  • Orders shipped
  • Appointments booked
  • Leads generated

The most common transaction fee percentages range from 1-5%, but these percentages can vary widely based on the industry, use case, TAM, and any other variables that impact who is using the software and what they’re using it for.

Pros and Cons

Similar to consumption-based pricing, the transaction fee pricing model ties revenues tightly to platform usage. This makes it easy for SaaS vendors to scale revenue as transaction volume increases.

However, the revenue generated from transaction fees can ebb and flow based on the types of transactions they’re using to generate revenue, as well as any seasonality that could impact the volume of these transactions. Startups using this pricing model may also find it difficult to get funded at first because they don’t have the same fixed monthly recurring revenues you’d typically find at companies using a flat-rate model. Additionally, building the payment and transaction capabilities required to leverage this type of model requires significant development work.

5. Freemium model

With a freemium model, companies offer a free, limited version of their SaaS product to attract user signups. Then, they can leverage their existing user base to upsell a small percentage of these customers to paid premium plans.

How It Works

Freemium models are designed to get potential customers in the door by giving them access to basic features and functionality. Once those users begin to show signs of retention, they can be upsold to a premium plan that would give them access to a greater number of features. Some of these premium features could include:

  • Greater usage capacities
  • Premium customer support
  • Brand customization and white-labeling
  • Dedicated account managers

This incentive-based approach is what makes the freemium model so profitable. First, you get users hooked on your software. Then, you upsell those users to scale revenue. 

Pros and Cons

SaaS companies can use freemium models to leverage broad accessibility and organic sharing to rapidly build and scale their user base. 

But only a small fraction of these free trial users will turn into paying customers. Because user acquisition and monetization are wildly unbalanced in this pricing model, companies considering this model will need to forecast their user conversion rates ahead of time. If companies can only convert a small percentage of free users into paying customers and still turn a profit, then this pricing model may be a good choice.

6. Integrated value-added services

Rather than just providing access to their software, some SaaS providers sell packaged bundles — these “bundles” typically include a blend of software subscriptions with customized professional services added on top.

How It Works

Within a value-added model, SaaS companies seek to scale revenue by upselling powerful add-on features that provide additional value to their users. A few value-added offerings include:

  • Implementation and rollout services: This typically includes done-for-you implementation services, data migration, and user onboarding and change management support
  • Ongoing administration: This includes platform management and updates, automation tools, and custom integrations
  • Training and enablement: This offering includes online and onsite user training, admin and power user education, and additional playbooks and collateral-related software training

This “white glove” approach allows software companies to unlock additional streams of revenue without needing to develop new products, features, or modules. Instead, they can leverage human-powered services to scale revenue and create a more personalized experience for their users.

Pros and Cons

Bundling professional services alongside a core SaaS offering can quickly raise a company’s average deal size and increase their customer satisfaction scores. However, the costs associated with these white glove services scale as well. Ultimately, companies using this model will need to determine if the additional revenue generated and increased user retention rates driven by these value-add services are worth the costs they incur.

7. Referral and affiliate fees

A referral or affiliate program rewards existing users for driving new customer sign-ups via word-of-mouth marketing. This is a great way for SaaS companies to generate additional revenue without needing to offer additional features, add-ons, or professional services.

How It Works

Typically, existing customers will share a unique referral link or code with peers who go on to purchase a piece of software. This can earn both the new and existing users incentives like:

  • Account credits
  • Free months of access
  • Cash rewards
  • Gift cards
  • Entry into contests

Pros and Cons

Referral programs incentivize organic evangelism, increase brand awareness, and can drastically reduce a company’s customer acquisition costs (CAC) when done well. However, getting these programs off the ground takes time and typically only works if you already have an engaged user base. There are also some short-term revenue impacts that companies should take into consideration when offering discounts and account credits to new users.

8. Feature-limited tiers

A feature-limited tier works by packaging and restricting advanced features and functionality based on pricing tiers. Users are then encouraged to upgrade their subscription plan at a higher cost to gain access to additional features, modules, integrations, or other features that could provide additional value. 

How It Works

With feature-limited tiers, companies can put a paywall in front of certain features, including:

  • Number of connected apps/data sources
  • Advanced reporting and analytics
  • Real-time visibility
  • API access
  • Premium support

Pros and Cons

Feature-limited tiers give SaaS companies the flexibility to serve both SMB and enterprise buyers through incremental plan constraints. However, the feature gaps between these pricing tiers shouldn’t overwhelm your basic users or underserve your premium ones — each pricing tier needs to strike the right balance of value provided and cost required for this model to be successful.

Key metrics to include in your revenue model

If you want to determine whether or not your business is sustainable, you need to make realistic assumptions about your revenue growth rate and customer retention patterns. Here are the metrics we recommend you include in your revenue model to track these patterns:

  • Churn Rate: The percentage of customers canceling subscriptions each month. A high churn rate signals a company is facing issues with customer retention.
  • Customer Lifetime Value (CLV): The total revenue expected from an average customer over their entire lifecycle. A higher CLV typically means more revenue generated per user overall.
  • Annual Recurring Revenue (ARR): Your projected yearly recurring billings for renewals and new signups.
  • Average Revenue Per User (ARPU): This is the forecasted average payments collected per subscriber each year.

Correctly tracking the metrics above is key to properly assessing the health and long-term viability of your business. 

Common pitfalls when transitioning between revenue models

Switching to a subscription-based revenue model comes with its own set of growing pains, and many SaaS leaders don’t know how to properly set up or interpret these models to accurately track their financial performance month-over-month. These are the most common pitfalls that occur when transitioning to subscription-based revenue models (and how to avoid them).

1. Underestimating the impacts of deferred revenue liability

Shifting to subscription pricing can create a “deferred revenue liability” in most SaaS companies — this is money collected upfront for services that are yet to be delivered over the contract term. And when you factor in annual contracts, these deferred revenue balances can pile up into the hundreds of thousands to millions of dollars range.

The key to avoiding these deferred revenue balances is by reconciling your new sales with your existing deferred revenue drawdown rates. For example, if $10 million liability exists, and it draws at $2 million per quarter, then 8 million net new billing is required to post $10 million revenue that quarter. In other words, if you don’t reconcile your compounding upfront payments, you’ll be facing some pretty severe discrepancies during your monthly and quarterly financial reviews.

2. Focusing on new sales over renewals

In SaaS, renewals are just as important as new customer acquisition — especially as you start to scale.

With this in mind, your pricing strategies and sales commission structures should incentivize renewals equally to new customer acquisition. Not only do high renewal rates make it easier to forecast future revenue, but they also decrease the risk of volatility in your business caused by churned customers. 

Once you’ve built out the infrastructure needed to ensure customers, you need to ensure that your revenue models are capable of tracking new sales vs. renewals. This will give your executive team greater visibility into how revenue is ebbing and flowing in your business and whether these changes are the result of customer acquisition and churn or user monetization and subscription downgrades.

3. Not linking the model to a broader financial plan

When transitioning to subscription pricing, your revenue model can’t exist in a silo — it needs to connect with your broader financial planning efforts. For example, how is your monthly subscription revenue impacting your company’s revenue targets, profit margins, and cash flows?

If you don’t have visibility into how your monthly recurring revenue (MRR) is impacting your company’s financial health across these different variables, it will be near impossible to assess the health of your business on a monthly basis or make accurate future forecasts.

The complete guide to SaaS revenue modeling

Want to learn from the experts how to build a successful SaaS revenue model? Download The Complete Guide to SaaS Revenue Modeling today to get started with your own model.

In the guide, Burkland’s Debbie Rosler and Maxio’s Jon Cochrane dive into the key components of revenue modeling and even provide a template to help you get started. Here’s a quick preview of what you can expect to learn:

Chapter 1: Fundamentals of SaaS ARR and Revenue Modeling

Chapter 2: Bottoms-Up or Revenue Driver ARR Modeling

Chapter 3: Top-Down or Trendline ARR Modeling

Chapter 4: Forecasting Cash Flow Associated with ARR

Chapter 5: Key Takeaways and Free Metrics/Revenue Modeling Template

Key takeaways

  • The main difference between revenue modeling in a subscription vs. non-subscription businesses is how revenue is recognized. 
  • Projecting future revenues from a subscription business is less subjective because they are recognized over a specific period of time, whereas there’s no guarantee of future revenues in a non-subscription business.
  • Clearly understanding deferred revenue balance and how your future billing schedules may increase or decrease that balance becomes essential when projecting your future cash flows.

For more tips and tricks on how to build a revenue forecast, check out Ben Murray’s SaaS Revenue Forecast Model.

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The complete guide to SaaS revenue modeling

It’s difficult to build a SaaS revenue model that accurately reflects your future cash position. In this guide, we’ll show you exactly how to collect, measure, and use these metrics to build a long-lasting revenue model that will grow with your business over time.

What you’ll learn

  • Two methods for forecasting ARR
  • How to model cash flow associated with revenue
  • How to build an ARR momentum table

Get the ebook

As someone who’s guided SaaS companies through periods of exponential growth, I’ve experienced firsthand the breakneck pace of change that makes forecasting subscription revenue an immense challenge. 

Between unknowns around customer retention, usage fluctuations, and market shifts, obstacles loom around every turn–no two days feel the same.

In years past, I’ve known early-stage SaaS leaders who may have relied on intuition or “gut calls” to drive growth decisions amidst the chaos of scaling. After all, when you have less than 100 customers, it feels like you can keep most of the high-level company financials in your head. But now, basing growth decisions on feeling rather than data just isn’t an option.

This is why it’s critical that you start forecasting future revenue in your SaaS business. No matter what unpredictability your company faces, the ability to construct effective forecasting frameworks allows you to plan future months, quarters, and years proactively–instead of falling victim to whatever economic headwinds stall your growth.

Throughout this article, I’ll be sharing some of the highlights from my recent webinar with Maxio, “Forecast-Ready SaaS Metrics,” so that you can start building accurate revenue forecasts in your business. 

Core Data Sources You Can’t Afford to Miss

For starters, you can’t build accurate revenue projections unless you have access to quality data sources. I’ve known many founders who have leaned on the optimistic side and inflate their projections, while seasoned execs often erred on the side of caution and built their projections conservatively.

Neither of these is a great way to scale a business. At the end of the day, you need facts and figuresçnot hunches–to guide your decisions.

First and foremost, you need a reliable financial reporting system if you want to build a revenue forecasting model. The right tools act as the bedrock for accurate financial models, whether you’re using an accounting platform or a dedicated financial operations platform like Maxio.

Secondly, having access to HR data on your sales team headcount is crucial for calculating key metrics like revenue per FTE. Comparing FTEs historically helps determine if you have enough organizational firepower–or are overextending resources–to deliver expected revenues. No forecast aligned with reality should be made in a vacuum without factoring in your frontline hiring plans and current employee productivity.

Third, reconciling bookings captured in your CRM with recognized revenue numbers can help you maintain data integrity. As Maxio COO Chris Weber suggested on our webinar, tying your revenue down to the penny ensures consistency between your sales projections and financial outcomes.

Lastly, you shouldn’t forget that you can use customer revenue data to gain granular insights into subscription momentum across your customer segments. By breaking your revenue data into customer types, geos, pricing plans, or other critical groupings, you can tailor your assumptions and forecasts to whatever story you’re telling–whether it’s to your board, investors, or your executive team.

How to Build A Forecasting Model With Key Inputs

If you want to build a revenue forecasting model you can trust, you need reliable data.

As a CFO, it’s my job to make sure that companies aren’t making sweeping guesses about their financial performance. And neither should you. Instead, you should take the time to make custom assumptions for each of your major customer groups based on how they actually behave. 

This is where having access to a reliable financial operations platform comes in handy yet again. For example, with Maxio, you can break out the metrics for long-time subscribers separately from newer customers, those on premium plans vs. basic ones, and SMBs apart from enterprises. 

Since each segment acts differently as far as renewals, add-ons, or cancellations are concerned, you’ll get insight by factoring in those unique details across your subscriber base. Additionally, you should ground your model in segment insights rather than overall averages to make your forecasting volumes, revenue, and churn far more accurate.

Another helpful tip I’ve learned when building out a revenue forecasting model is to map your assumptions like expected renewal rates, expansion vectors, and churn risks across your customer types, firmographics, pricing plans, or other categories within your own subscriber base. This way, you can retain enough granularity in your model to steer each lever impacting subscription revenues while right-sizing complexity.

Real-world Use Cases for Building an Accurate Forecasting Model

Following so far? I’ve covered a lot of theoretical modeling advice in this article, so let’s walk through a few real-life examples to tie this all together.

Let’s say you’re providing an enterprise SaaS solution. The company has grown to the point where customers’ needs are getting more specific and it’s becoming necessary to set up sales-negotiated contracts.

In this case, you’ll want to include an extended runway from initial contact to a closed deal. Map out the step-by-step flow of your sales process, incorporating key variables like seasonality or average sales cycle length. Once you’ve accounted for these variables, you can start building revenue projections based on models that reflect the real-world operational tempo and rhythm of your business. Ultimately, this lends authenticity to your forecasting data and can help you uncover trends that would have gotten lost otherwise.

In short: Matching your assumptions to reality = Proactive planning = Greater chance of success in scaling your SaaS business.

Manage Re-Forecasting Efficiently

So, you’ve learned how to build an accurate revenue model. Now what?

Rather than treating revenue forecasts as a one-and-done exercise, you should regularly refresh your models by inputting your team’s most up-to-date performance data and observations. Markets move fast–what was true last quarter likely won’t hold for the current one as competitive dynamics and customer needs evolve.

By continually checking your assumptions against the latest actuals and recalibrating as needed, you can empower your business to nimbly adjust strategies ahead of the curve. These ongoing revisions ensure your planning stays grounded in current realities rather than outdated projections–this is what will give your team the confidence to pursue growth in spite of any market fluctuations.

I also strongly suggest that you should check where your projections were incorrect during the revision process. This is key for ensuring you’re able to accurately forecast your future business performance.

After each forecast refresh, compare your newest projections against earlier ones to detect any mismatches. Review your variances by asking: were we off-base estimating churn rates or growth? If so, you should drill into what specifically caused the differences. Identifying why these deviations happened will allow you to continue refining the accuracy of your inputs over time.

As you’re making your revisions, you should also watch closely for changing trends in your data.

For example, if you notice a subset of customers sharply dropping off, it may indicate it’s time to lower expected renewal rates for that segment in the next forecast. The key is responding to real trends rather than temporary exceptions or outliers that self-correct. Training your team to spot true signals separates helpful recalibration from any potential overcorrection to market noise.

Leverage Your Data for Certainty in Uncertain Times

So there you have it. That’s my two cents on building forecasting models.

As a SaaS CFO who’s advised numerous leading companies, I’ve seen even the most buttoned-up organizations struggle with an extremely volatile and complex market landscape. But leaders who invest early in accurate metrics dashboards and customizable forecasting models give themselves the ability to slice through the confusion and make the right decision, no matter where they’re at in the growth curve. 

If you want to start building your own models, I suggest you start with this revenue forecasting model I’ve pre-built for you. Better yet, if you’re already a Maxio customer, you can pull metrics from the subscription momentum report to use as the initial inputs for this model and start making better decisions about your company’s future.

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Revenue recognition is a make-or-break process for SaaS companies. 

Flawed revenue recognition distorts financial reporting, metrics, valuations, and investor perceptions. Yet despite these risks, the SaaS CFO’s 2024 Finance and Ops Survey alarmingly found that 39% of SaaS companies still use spreadsheets for revenue recognition

With so much at stake, SaaS companies must ensure their monthly recurring revenue schedules and methodologies are bulletproof. Here’s how to avoid falling victim to an overreliance on spreadsheets for rev rec and what to do about it.

The Risks of Using Spreadsheets for Revenue Recognition

Every finance and accounting professional worth their salt knows their way around a spreadsheet. They can be used to build forecasting models, cap tables, P&Ls–virtually everything you’d ever need to manage a business’s cash flow.

But what happens when a business introduces recurring revenue, hybrid-pricing models, and accrual-based accounting methods? If you have plans to scale your SaaS business in hopes of an eventual exit or IPO, but you’re still using spreadsheets to account for these financial complexities, you might as well flip a coin to determine whether or not your business stays afloat. Dramatics aside, relying on spreadsheets to manage a $1M ARR SaaS business can quickly lead to non-compliance, a loss of funding, and a lower exit valuation if you’re not careful. 

Here are a few of the other risks that come with using spreadsheets at scale.

Lack of Robustness and Detail 

Spreadsheets lack the flexibility and rigorous logic to accurately account for complex recurring revenue, hybrid pricing models, complex sales-negotiated contracts, and revenue share models. All of these factors make it incredibly difficult to manually track a SaaS company’s monthly cash flow. 

Even if you’re able to keep your company’s financials under control in the early stages of your business, your problems will only start to snowball as auditors and investors ask for historical records of your financial statements later on (and they better be accurate if you want to stay funded). 

Prone to Manual Human Error 

The manual nature of spreadsheets leaves them vulnerable to accidental human data entry and formula errors that can quickly spiral out of control. A minor mistake can easily distort your records of MRR, deferred balances, revenue recognition timing, and other critical financial reports.

What’s worse is that many companies typically only have one or two employees who understand what is inside these large spreadsheets and how to operate them. Leaving the institutional knowledge of your company’s financials in the hands of one or two people could have major repercussions later on. Instead, your best bet is to invest in a point solution that is purpose-built to manage revenue recognition for complex subscription-based businesses.

Difficulty with Auditability & Documentation 

Many auditors will refuse to rely on spreadsheet-based revenue recognition processes given the lack of detail, transparency, controls, and documentation inherent to them. Spreadsheets make it painfully difficult to track sources, assumptions, interdependent calculations, and changes over time. Auditors require end-to-end clarity into revenue recognition logic with guard rails against inadvertent errors.

Additionally, spreadsheets nurture disorder without rigorous change controls. Imagine an auditor combing through a tangled, complex spreadsheet months or years after its initial creation and trying to retrace steps. With poor version histories, cell-level details, untraceable precedents, and limited notes, unraveling another person’s spreadsheet logic is virtually impossible.

Ineffective Reporting and Analytics 

Spreadsheets often sync poorly with other systems and provide limited canned or dynamic reporting on revenue recognition activities, schedules, and trends. Copying and pasting data between spreadsheets and connected systems like billing, ERPs, and data warehouses also opens the door to errors through manual data manipulation. Even when spreadsheets are technically integrated, they rarely trigger automatic, real-time data exchanges.

Additionally, the rigid structure of spreadsheets makes dynamic reporting around revenue highly manual. For example, easily pivoting a revenue report to show new views– like revenue by product line, contract type, global region, or customer tier– typically requires tedious spreadsheet surgery. And most calculation-heavy spreadsheets choke when more than 2-3 basic reporting filters are applied.

To maintain visibility, financial planning requires slicing and dicing revenue recognition from many perspectives. However, trying to infuse granular reporting across key dimensions will quickly overwhelm most spreadsheets. 

Rather than roll the dice, SaaS finance teams should consider implementing purpose-built revenue recognition software that’s capable of managing monthly recurring revenue schedules, automating revenue recognition, ensuring compliance, and providing air-tight audit trails. The bottom line– your revenue recognition must be bulletproof.

Spreadsheets Are Not Built to Handle Complex Rev Rec Scenarios

In addition to human errors and poor reporting, spreadsheets can’t handle many of the revenue recognition complexities that commonly show up in modern SaaS businesses. From usage-based pricing models to sales-negotiated contracts, spreadsheets lack the dynamic modeling capabilities required for absolute accuracy. 

Here are two examples of high-risk edge cases that spreadsheets fail to properly handle.

Scenario 1: Usage-Based Pricing Models

Many SaaS companies offer usage-based pricing models alongside or instead of subscription fees. 

For example, customers may be charged per API call, compute hours consumed, data processed, seats accessed per month, etc. Tracking and properly recognizing revenue across these different usage-pricing variables requires complex logic that no spreadsheet can efficiently handle.

Scenario 2: Non-Standard Customer Contracts

SaaS companies often negotiate custom contracts with large enterprise customers that involve discounted future rates, prepaid amounts, tiered pricing rates as usage scales, revenue share components, and more. Attempting to model these multi-year non-standard arrangements manually becomes an unmanageable mess in basic spreadsheets.

In short, the variability of modern SaaS pricing and deal structures leads to intricacies that spreadsheets just weren’t designed for.

Regulatory changes that spreadsheets struggle with

If trying to force-fit a spreadsheet into a rev rec solution wasn’t difficult enough, SaaS finance leaders also have to take updated accounting standards and increased regulatory scrutiny into account. Non-compliance just isn’t an option if you want to successfully scale a business, and spreadsheets don’t offer that compliance safety net.

For example, the Financial Accounting Standards Board (FASB) is currently reviewing accounting standards for vendor-specific objective evidence (VSOE) and implied PCS in cloud computing contracts. Defining and separating revenue components from bundled SaaS/PCS contracts under new guidelines involves intricacies that would be manually intensive–if not impossible–in basic spreadsheets.

Additionally, global regulators are pressing for more disclosures and financial details tied to revenue recognition methodologies. Capturing, documenting, and reporting on elements like performance obligations, contract assets/liabilities, and disaggregated revenue data introduces a significant compliance burden that spreadsheets are too limited to manage.

Why Revenue Recognition Software is Necessary for SaaS Companies

You don’t need to invest in an ERP right off the bat if you’re facing difficulties using spreadsheets for rev rec. So what’s the third option?

Well, according to the 2024 Finance and Ops Survey, most of the 535 SaaS participants currently prefer stitching together targeted point solutions instead of using an all-in-one ERP, especially in the early stages. More specifically, 57% stated they prefer point solutions and are comfortable with multiple solutions integrated together, while only 24% preferred to limit the number of solutions through an ERP system.

This is why we recommend that SaaS companies should implement a point solution that is purpose-built to automate and manage their complex revenue recognition scenarios. Here are just a few of the key features that revenue recognition software provides:

Automated MRR Schedule Management: Systematically automate the tracking, management, and revenue recognition tied to monthly recurring revenue subscription schedules.

Sophisticated Revenue Modeling: Handle even intricate deferred revenue, prepaid contracts, revenue shares, milestones, and custom revenue recognition rules with flexibility that no spreadsheet can match.

Compliance and Standards: Maintain compliance with accounting standards like ASC 606 and IFRS 15 automatically.

Reporting and Analytics: Offer pre-configured and ad hoc reporting on revenue recognition activities, trends, and drivers across specific product lines, customer cohorts, subscriptions, and other dimensions.

This level of automation, flexibility, and insight is impossible in makeshift spreadsheets. On the other hand, purpose-built rev rec software also provides the scalability, controls, and auditability that are crucial for sustainable business growth.

Streamline Your Rev Rec Process with Maxio

In summary, relying on decentralized spreadsheets for core revenue recognition is reckless at best. At its worst, it could lead to a loss of funding, a failed audit, or negatively impact your valuation upon exit. Rather than ignoring these risks, SaaS finance leaders must implement integrated revenue recognition systems to ensure financial integrity across their businesses.

Want to maintain financial integrity and achieve sustainable growth? Schedule a demo to learn how Maxio is helping countless SaaS companies retire their spreadsheets for good so they can focus on scaling.

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Revenue Recognition Policy Template

Auditors require lots of documentation to ensure accuracy. Having a solid revenue recognition policy in place is the first step toward ensuring compliance.

The pandemic tailwinds in 2020 and 2021 were considerable. In fact, based on the helpful work of David Spitz, we know that public SaaS businesses during that period only spent $1.60 in sales and marketing for each new dollar of ARR.

Chart_GTM Spend Ratio 2020-2023

David defines this as the Go-to-Market Spend Ratio, and for our purposes, it is the same as the Customer Acquisition Cost Ratio. Assuming a gross margin of 80% and a retention rate of 90%, that’s a compelling ROI. The math works out to an 80% internal rate of return (IRR) on sales and marketing spending. Here is a link to his original post.

But that was then. Today, the average public SaaS company spends $2.40 in sales and marketing to acquire one incremental dollar of ARR. The IRR on that math is 35%, and that’s why SaaS businesses are worth much less than in 2020.

That said, I would love to have a 35% IRR on all my investments. 

So, what’s the takeaway for executives and investors in private SaaS business?

Why Use CAC IRR vs. Other CAC Metrics

This is worthy of a whole separate article, which I will post soon, but in addition to the CAC Ratio, LTV to CAC, and CAC Payback Ratio each having some problematic mathematical distortions; they don’t convey intuitive results or results that can be compared to other potential investments. Is four a good LTV to CAC? Is ten a good CAC payback? People say they are, but the only way to know if the results are intrinsically good or bad is to convert them into an IRR, so let’s start there instead. 

Know Your Numbers

The first step is to get grounded in your company’s unit economics of acquisition cost, gross margin, and retention. Metrics can be tricky, so spend some time on this. You must estimate your sales cycle accurately and your long-term retention rate. This linked spreadsheet helps define the metrics and turns them into an IRR for your sales and marketing spending. 

For our purposes here, it’s worth pointing out that almost all metrics are averages, but what should guide investment decisions is actually marginal costs and marginal revenue, which are similar but more difficult to determine. For example, suppose you have twenty salespeople with a good flow of leads. In that case, a new salesperson is likely to perform about as well as the average, so the IRR on your current sales spending will likely hold for the incremental new hire. But suppose you only have five salespeople who are starved for leads. In that case, a new salesperson will likely perform worse than average (or depress the whole group’s performance) such that the IRR on the incremental investment is meaningfully lower than the average before the hire. The breakdown of company profiles below is based on averages, which is fine in most cases, but managers should be mindful of marginal performance when making investment decisions.

Which zone are you in?

With the above caveats in mind, maintain or increase your sales and marketing spending if your current sales and marketing investments generate an IRR above 35%. In the accompanying graphic, your business is in the Investment Zone. Increasing investment until the point the business crosses into cash-burn mode is straightforward; once cash is burned, the cost of capital must be considered.

Why 35%? A high hurdle rate is appropriate here because: 

1. Private SaaS businesses, in general, are risky investments compared to the total landscape of investable assets, and 35% is a long-term hurdle rate used by top VCs investing in the space, and 

2. Sales and marketing investments inside those businesses are even riskier, so 35% is actually on the low side.  

If your IRR is below 25% and you are profitable, you must look hard at your spending and retention numbers. You can improve your IRR by experimenting and becoming more efficient in sales and marketing, but also remember that retention and gross margins contribute significantly to this equation. If you can’t find a way to acquire customers more efficiently, make the ones you do acquire more valuable. This is consistent with the “cash engine” and “growth engine” approach to SaaS.

On the chart, this is the Operational Needs Zone. Businesses in this zone have time to work on their model, and they may or may not choose to cut back on sales and marketing spending, but they should only invest more once they have improved their CAC IRR.

How does burn impact your thinking?

Regardless of your CAC IRR, if your company is burning capital, you need to open the aperture of this analysis to capture your total burn, not just sales and marketing spending. Think of it this way: your company needs to stay in business to make its sales and marketing investments, so the burn becomes part of the incremental investment. 

If you are burning money, but your CAC IRR is strong, you are in the Cost of Capital Dependent Zone. Many companies find themselves here today, and it’s not uncommon for a business to create value as a whole, but because capital is so expensive, the current owners don’t capture any of that value. Fundamentally, the growth in the size of the pie is offset by the shrinking size of the slice. Dilution offsets value creation for the founders and current shareholders. Here is a link to a separate model that helps quantify the investment trade offs based on burn ratios, growth rates, and the cost of capital.

Finally, companies find themselves in the Broken Business Zone when weak CAC IRRs are paired with a significantly negative operating margin. These companies need to look at everything the Operational Needs companies are looking at, but they must do it quickly and pair it with a reduction in spending. These businesses cannot spend their way into profitability and are not good candidates to raise money.

Not listed on the chart, but a real possibility I have seen more than once is negative CAC IRRs. If this is where you are, stop spending on sales and marketing—really, stop. Negative CAC IRRs call for a complete reset of the GTM approach. 


So, while it’s true that the good old days of 80% IRRs on sales and marketing spending are over, it does not mean that current go-to-market investments are wasteful, but they must be carefully measured.

As always, it’s essential to recognize that running a model differs from running a SaaS business, and modeling may not be helpful in companies with little understanding of the relationship between sales and marketing spending and growth. It is always possible to calculate CAC metrics mathematically, but it does not mean there is a causal relationship. I have seen countless SaaS companies raise capital, spend aggressively, and watch growth rates stay exactly the same or decline. Early-stage companies, in particular, should be careful about ramping up sales and marketing investment based on immature CAC and retention numbers. 

All that said, resource allocation is a primary function of senior management and board members, and even with imperfect assumptions, working through this type of analysis should help frame decisions about additional investments in sales and marketing, which may very well create value. However, they may fall short of historical expectations.

Chart_Investment Profile by Profitability and CAC Efficiency

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The State of SaaS Growth 2024

In this report, we present an update on the overall state of today’s B2B subscription marketplace based on the actual billing data of 2,400 B2B SaaS companies. We discuss:

  • The general return to normalized growth levels in 2023
  • The differences in “normalized” growth rates for each industry, including which industries grew the most and which proved “recession-proof”
  • The impact of billing model on company growth from $0-$1MM, and then to $100MM

Get the full report

Imagine steering a ship with only your hunch to guide you, in the dark heart of the ocean. That’s almost the same as running your SaaS business without an effective financial model. Perplexing, right? It’s time to illuminate your course.

Every year, over countless SaaS businesses are launched, yet 65% of new startups fail during the first ten years, a bitter truth that could often be attributed to poor financial planning. Your SaaS business is anything but a quick sprint; it’s more like a marathon that requires the strategic management of your monetary resources to thrive and survive in this digital ocean.

On the crest of scaling your SaaS business? Let’s light your way to victory by digging into the dos and don’ts behind effective financial modeling.

Mastering SaaS revenue forecasting: the key to predictable growth

Here’s the TLDR of what we’ll cover in this section: 

  • A foundational understanding of SaaS revenue forecasting concepts
  • The steps to design a substantial SaaS revenue forecast

Understanding the basics of SaaS revenue forecasting

Revenue forecasting is the lifeline of any SaaS business. It serves as a roadmap to your enterprise’s monetary future, enabling you to prepare for potential financial pitfalls and explore lucrative opportunities. SaaS revenue forecasting differs from forecasting traditional business models due to the recurring nature of revenue in SaaS. In short, accrual accounting, upsells, downgrades, renewals, sales-negotiated contracts all make revenue forecasting more complex for SaaS companies.

When done right, revenue forecasting helps to keep SaaS companies financially healthy by guiding decisions about scaling the business, managing cash flows, and long-term strategic planning. It’s a bedrock of knowledge for any SaaS business in the growth stage or aspiring to scale to the next level. 

A step-by-step guide to creating a robust SaaS revenue forecast

To create an effective SaaS revenue forecast, first, you need to calculate your Monthly Recurring Revenue (MRR). This is the predictable and calculable income that a SaaS business can count on every 30 days. You can then multiply this number by twelve to get a rough estimate of your annual recurring revenue (ARR) – excluding any fluctuations cause by churn, upsells, and downgrades of course.

Next, you should identify your churn rate – the percentage of your customers who are leaving over a certain period. A lower churn rate indicates that your company holds onto most of its customers, which is beneficial for forecasting stability. Not only does this correlate with revenue growth and a higher customer lifetime value, but it’s one of the key metrics that VCs analyze when determine the valuation of a SaaS business.

Lastly, you should consider the growth rate of your new MRR. This can indicate the potential average revenue of your product in the market.

By applying mathematical forecasting models to this data, you can anticipate future monthly recurring revenue, growth rates, churn rates, and the overall future growth of your business. This might appear as a daunting task, but leveraging the right tools and techniques simplifies this process substantially.

SaaS unit economics: the foundation of your financial model

SaaS unit economics form a critical core of any SaaS startup’s financial model. As the financial backbone, unit economics demonstrate not only how profitable each customer can be but also hint at a business’s long-term financial health. It’s the tiny threads weaving together to form the financial tapestry of your SaaS business. 

SaaS unit economics metrics help outline the anticipated cost to acquire customers (CAC), the expected lifetime value of a customer (LTV), and the rate at which customers churn. 

The significance of these SaaS metrics isn’t solely in their numerical values but in what they symbolize about your business’s health and future. They provide clarity around the state of your company’s financials, and can make it easier to conduct financial forecasts and adjust your business plan as needed. 

A quick dive into key SaaS unit economics metrics 

In SaaS, the battle isn’t won simply by understanding the role of unit economics; one must also be well-versed in maneuvering its calculation. There are three essential metrics: Customer Acquisition Cost (CAC), Customer Lifetime Value (LTV), and Customer Churn rate.

Let’s dissect each:

Calculating customer acquisition cost (CAC)

CAC represents the average cost of acquiring a single customer.

Determining customer lifetime value (LTV)

LTV is the total revenue a company can expect from a single customer over the duration of their relationship. 

Understanding Churn Rate

The churn rate, also known as the rate of attrition, refers to the percentage of subscribers to a service who discontinue their subscriptions within a given time period. 

Accounting for cost of goods sold (COGs)

In SaaS businesses, Cogs refers to the direct costs attributable to producing and delivering subscription services to customers. Tracking COGs allows SaaS companies to determine their gross margin. As subscription revenue grows, the gross margin tends to improve as well since cogs does not rise proportionately.

Amping up your SaaS unit economics with effective strategies

With a solid comprehension of SaaS unit economics, your CFO, business leaders, and other key stakeholders can all get on the same page about the health of your business. Once you’ve pored over your company’s financial statements and seen where you can improve your company’s KPIs, you can then employ these strategies to improve your unit economics.

Optimizing your customer acquisition cost (CAC)

Lowering your CAC goes a long way in fortifying your unit economics. Consider strategies that lower your marketing, sales, and R&D costs without compromising on acquisition quality. If the situation is dire, you may decide to lower your companies headcount.

However, you can also play offense by pursuing opportunities to increase your average revenue per user (ARPU) by increasing your pricing or monetizing your existing user base. Ultimately you want to lower your CAC ratio and shorten your CAC payback period – this will save you countless fundraising dollars and lost revenue as you scale.

Fortifying your customer lifetime value (LTV)

Increasing your LTV often results developing a remarkable customer experience, leading to increased customer retention and upsell opportunities within your existing customer base. While increasing the number of customer who sign up for your SaaS or improving closed/won conversion rates are often seen as the fastest ways to generate revenue for early-stage companies, improving your LTV can reap massive monetary rewards at scale.

Managing your churn rate

Mindful churn management ensures healthier unit economics. Plain and simple. You can implement effective retention strategies and customer satisfaction initiatives to keep your churn rate low. A quick look at your cash flow statement, income statement, or balance sheet should tell you how much revenue is being lost to churn each month.

Once you identify what’s causing churn in your SaaS business, you can work toward improving your retention rate month over month. By continuing to benchmark your churn rate each month, you’ll gain a better understanding of what growth levers you need to pull to reduce churn and keep your customers signed up and sticking around.

Want to improve your unit economics? Download our SaaS financial model template. Just download the template, plug in your company’s existing metrics, and start building out your very own startup financial model in minutes.

SaaS cash flow management: ensuring your business’s financial health

In SaaS, like most businesses, cash is king. That’s why, in this section, you’ll learn the following:

  • How to keep the lifeline of your SaaS business, your cash flow, in check for ensuring your long-term survival.
  • How to implement best practices for effective SaaS cash flow management.
  • And, how to utilize tools and resources specifically designed for SaaS cash flow management.

The importance of cash flow management in SaaS businesses

The era of Software as a Service (SaaS) businesses has brought about the concept of scalable growth, where optimizing financial resources is imperative to survival. Cash flow management stands as the pulse check of any SaaS entity, gathering its significance from the unique subscription-based revenue model and high upfront investment.

For any subscription-based business, cash collections occur over a span of time, while expenses might be upfront. Hence, maintaining an efficient cash flow can shield the organization from disastrous economic downturns and also enable it to seize growth opportunities during a downturn. In essence, effective cash flow management gives you the power to control your financial destiny.

Similarly, a SaaS business’s valuation is largely affected by its burn rate or the rate at which it’s consuming its cash reserves. A higher burn rate often sends a red signal to investors, waring them to reconsider their investment decision.

Best practices for effective SaaS cash flow management

To effectively manage cash flow in your SaaS business, you need to live by some best practices. First, strive to understand and manage your operations and financing cash flows. Developing a thorough understanding will provide you with the clarity to take informed decisions during challenging economic times.

Second, be proactive, not reactive. To do so, attempt to forecast your cash flow based on various plausible scenarios. This hypothetical projection will equip you with the resilience to withstand real-life cash crunch situations. A stitch in time, indeed, saves nine.

Third, focus on increasing customer lifetime value (CLTV) and decreasing customer acquisition costs (CAC). By maximizing this ratio, you are essentially maximizing your profitability, consequently aiding cash flow. Such practices help to foster a business that’s resilient, adaptable, and capable of thriving in the most turbulent market environments.

Tools and resources to help with SaaS cash flow management

In the digital age, several tools are available to assist you in your cash flow management journey. Accounting software platforms, like Maxio, provide real-time insights into your financials. The Maxio platform offer features like real-time cash flow projections, which enable you to see both the current and future states of your cash flow.

You can also use the Maxio platform to keep track of metrics that directly impact your cash flow, like CLTV and CAC. With these tools, you can track changes in these metrics over time and understand the trends impacting your business.

Many SaaS cloud platforms – that aren’t exclusively fintech – also offer financial management embedded within their service. Salesforce, for example, provides a complete solution for sales, service, and finance in a single application.

Remember, managing financial health requires more than just tools; it requires an understanding of your business’s financial ecosystem. However, seeking help from these resources can take you closer to attaining that proficiency, ensuring your business prospers in your competitive space.

SaaS financial metrics: what to track and why

Curious what metrics actually matter in your SaaS business? Here are the KPIs and SaaS metrics you should keep an eye on to ensure future growth and make sound business decisions.

Overview of essential SaaS financial metrics

Among the vast sea of data available to a SaaS business, certain numbers take precedence over others when it pertains to financial health. These financial metrics can be aptly compared to vital signs in medical checks – indicating the overall condition of the company.

The first critical metric, MRR, reflects the income garnered from subscriptions in a month. CAC, on the other hand, reflects how much is being invested to bring new customers aboard. Finally, LTV displays the predicted revenue from a customer over their lifetime. It helps weigh if the acquisition cost was justified or not.

How to track and analyze these metrics effectively

While knowledge of these metrics is crucial, even more important is the understanding of how to track and analyze them effectively. Financial metrics are your business’s map and compass, and knowing how to read them can be the difference between sailing smoothly or being shipwrecked.

Investing in a trustworthy SaaS dashboard for tracking these metrics is invaluable. They provide realtime insights reducing the risk of decision-making based on outdated information. Pairing this with regular and thorough analysis, you can keep your finger on the pulse of your business’s health.

Using financial metrics to inform strategic decisions

The real value of tracking and accurately analyzing these metrics culminates in their ability to support and guide strategic decisions, transforming your financial data into your business’s crystal ball. By keeping a close eye on these metrics, you can preemptively identify opportunities for growth or potential financial challenges.

For instance, if your CAC is escalating, it could be signaling the need for a more cost-effective marketing approach. Continually high LTVs, on the other hand, may suggest an under-tapped market waiting to be explored.

Effectively leveraging these metrics takes you from being reactive to proactive, setting your SaaS business on the path from zero to hero.

Crafting a comprehensive SaaS financial plan: your roadmap to success

A solid financial plan is crucial for growth in SaaS businesses. But building and executing on a financial plan is easier said than done (just ask anyone who has done accounting at a SaaS startup before). In this section, we’ll show you everything you need to build a comprehensive financial plan of your own.

The indispensable role of a financial plan in a SaaS businesses

A financial plan is not just a roadmap; it’s the GPS guiding your SaaS business towards success. It serves as a tactical tool, helping to make informed decisions and forecast future performance. Without a financial plan, a business might as well be venturing into the unknown. 

For SaaS businesses, the stakes are even higher. With a unique set of challenges such as high customer acquisition costs, unpredictable revenue flows, and scaling issues, financial planning is not optional; it is a must-have. A robust financial plan is vital in navigating these challenges while ensuring business growth, sustainability, and avoiding unexpected pitfalls. 

Key components of a successful SaaS financial plan

A winning financial plan for SaaS businesses consists of several critical elements. 

Realistic revenue forecasting

SaaS revenue is mainly recurrent, making it different from traditional business models. Understanding each revenue stream – be it monthly, annual, or ad-hoc – is essential for realistic forecasting. 

Analysis of customer acquisition cost (CAC)

In SaaS businesses, the cost of acquiring a customer often exceeds the initial revenue they bring. Understanding the interplay between CAC and long-term customer value is vital. 

Retention and churn rates

Keeping an eye on churn rates gives insight into the stickiness of your product. The lower the rate, the higher the potential for growth – simple as that. 

Cash flow management

Last but not least, tracking operating expenses versus revenue is paramount. The idea is to manage cash flow effectively to support growth while maintaining fiscal health. 

Tips for maintaining and updating your SaaS financial plan

A financial plan is not a set-and-forget tool. It requires regular maintenance and updates to remain relevant and effective. Here are a few tips to make sure you stick to your plan.

Regular monitoring and adjustment 

Business environments change, and so should financial plans. Regular tracking and adjusting of financial indicators is required to keep pace with changing circumstances. 

Using right tools and technology

Financial planning can be tedious and complex. Automating the task by using dedicated tools, like Maxio, can streamline the process, improve accuracy and provide insightful analytical data. 

Remember, the goal should always be progress, not perfection. A good financial plan is a continually improving work in progress, informing all your strategic decisions as it adapts and matures with your business. With the right approach and diligent effort, you can transform your SaaS business from zero to hero!

Sealing the deal: up your SaaS game with effective financial modeling

SaaS businesses survive and thrive based on the effectiveness of their financial modeling. It’s their way of staying competitive, resilient, and growth-driven in a volatile market.

But how should you ensure continuous improvement in your modeling game? For starters, you’ll want to build a financial model that gives you visibility into the health of your business.

Don’t worry. We made it easy for you.

You can download our SaaS financial model template, plug in your company’s existing metrics, and start building out your very own startup financial model in minutes.

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Your Plug-and-Play SaaS Metrics Dashboard

In this template, you’ll find a comprehensive set of pre-built SaaS metrics (that you can trust) to wow investors and make key business decisions with confidence.

Chart your path to profitability with metrics like:

  • Subscription Momentum (ARR, customer count, average ARR)
  • Churn & Retention (churn rate, renewal rate, net revenue retention)
  • Customer Lifetime Value (CLV)

Remember SaaS before the Rule of 40? Life was simpler then. Grow fast with good retention, and capital will find its way to your door. You can create value that way, but it’s reliant on cheap capital, which no longer exists.

Given the current cost of capital, should CEOs press the accelerator, drive growth, and raise another round? Or should they pull back to break even with more moderate growth and forgo additional dilution?

I’ve built a financial model to answer these questions. It looks at the outcomes for existing shareholders based on the following four assumptions: burn ratio*, growth rate, cost of capital, and exit multiples.

The model provides insight into this fundamental question:  based on how efficient your business is at turning cash into ARR, and given the dilution needed to support that growth, should you jump on the accelerator or not? Alternatively, how much of a slowdown can you absorb in transitioning to breakeven without destroying value?

The assumptions graphed compare a 50% growth business with a 1.1 burn ratio to a 33% growth business with a .2 burn ratio. The higher growth business raises capital at five times ARR and sells at six times ARR, and the efficient business raises money at four times ARR and exits at five times. Feel free to adjust as you see fit. Fundamentally, the burn ratio in the model drives the need for capital, which dilutes the current shareholders.

In this example, the current shareholders clear $229 million in the High Growth scenario vs. $146 million in the Efficient scenario. That’s the math. The model, however, does not include a risk adjustment. The High Growth plan requires $127 million to be raised in five rounds over ten years. A lot can go wrong with that plan, including droughts in the VC market like we see today.

In addition, the existing shareholders’ ownership in the High Growth scenario is only 33% at exit. That might be fine, but founders need to take into account of the lack of control that implies.

*Burn ratio is defined as Cash Consumed/New ARR. For this model, profit and loss are equivalent to cash flow.

About the author

Todd Gardner is the Managing Director of SaaS Advisors and the founder and former CEO of SaaS Capital. Todd was also a partner in the venture capital firm Blue Chip Venture Company and was a management consultant with Deloitte. Todd has worked with hundreds of SaaS companies across various engagements, including pricing, capital formation, M&A, metrics, valuations, and content marketing. Todd is a graduate of DePauw University and Indiana University.

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The State of SaaS Growth 2023

We’ve analyzed the billing data of over 2,100 B2B SaaS companies between 2022 and 2023 and have presented key insights, including:

  • Growth rates of businesses based on billing type
  • Where some of the fastest growing companies are located
  • The bar for raising your successive round of investment.

Download the report