Propeller Industries

Don’t Overlook These 3 Things When Financial Modeling for SaaS Companies

Finding financial modeling for SaaS companies isn’t difficult—there are countless plug-and-play Excel templates you can download online for free. But creating accurate and effective financial modeling for SaaS companies? That requires real expertise and insights. 

Proper financial modeling is less about plugging in the data and more about understanding the variables you have to play with. To make wise, realistic projections, you need a comprehensive understanding of your entire company’s ecosystem.

We sat with fractional CFO Brian Raphael to learn how he handles financial modeling for SaaS companies—and what your finance team is most likely to overlook.

1. Don’t Overlook: The Impact of Customer Retention

With most SaaS startups, the all-encompassing focus is on sales, sales, and more sales. Every SaaS product lead is obsessed with one question: “How do we get more customers?” 

And this should be the focus, especially for a burgeoning startup. 

But once a SaaS startup attracts customers, the next question should be, “How do we keep them?” 

Creating accurate customer retention projections is one of the most often overlooked aspects of financial modeling for SaaS companies. Evaluating how “sticky” your products are with your customers is one of the best barometers for your long-term financial health. 

If your SaaS subscription is based on one-year contracts, for example, retention will heavily impact the quality of your two-year projections.

“It should always be a one-year contract,” Brian says. “No more and no less.” This is long enough for the client to get to know and rely on your product—but not so long that they feel trapped. “You don’t want your clients to hate you.”

But determining customer retention rates is inherently difficult because it requires an intimate understanding of your entire product ecosystem, including:

  • The strength of your product-market fit
  • Customer perceptions of your product
  • Unique selling points of your product vs. competitors


Done properly, financial modeling is more than just a way to impress investors. “When you go this deep,” Brian says. “It really forces you to have that conversation across the entire team: ‘Is my product sticky enough?’ Answering this question helps you think about new ways to be effective or potentially add some additional revenue streams.” 

A few questions Brian recommends asking are:

  • What is my follow-on or upsell strategy? 
  • What is the expansion strategy after 9 months? 
  • Is my onboarding effective? After how many months do customers “get” the product?
  • Should I offer free trials? Brian doesn’t think so. “Revenue is way too important.”
  • Should I charge for onboarding and implementation? If you already have brand awareness and customer retention, you should.

2. Don’t Overlook: Revenue Generation From Professional Services

When financial modeling for SaaS companies, professional services are often overlooked.

This type of enterprise-level training and custom development is frequently disregarded because “Investors don’t care—it’s ‘small’ revenue and it’s manual,” says Brian.

After all, SaaS products are appealing to investors because they focus on annual recurring revenue (ARR), which is highly scalable and usually comes in the form of fixed subscription and/or product costs. 

But if you put yourselves in the shoes of your customers, professional services can be a great value add and/or upsell. Offering these types of services not only sets you apart from a lot of the competition, but you can also gather more intel from loyal customers. 

This type of data is critical to long-term success and can give your organization an edge when it comes to building out an onboarding ‘center of excellence’ or improving and expanding on existing products. Effective professional services require insights from Marketing, Sales, and Operations, helping you better understand your products, customers, and team members. 

That being said, professional services don’t have to be particularly involved or inventive. They can be something as simple as a two-week onboarding course. “Every renewal period – customers really want [an onboarding course],” Brian says. “It keeps you sticky, and can make a difference in your bottom line.” 

While professional services will never be your main offering as a SaaS company, they can easily make up 5–20% of your revenue. And while it’s more “hands-on” work than a SaaS subscription, professional services can add a lot to a balance sheet.

3. Don’t Overlook: Everything Outside of “Product”

Founders are often “product people.” They obsess over every aspect of their products and live, breathe, and sweat over the small stuff. But that doesn’t mean that they always know what’s best for their products.

“One of the biggest challenges of working with founders is reinforcing the value of understanding the end-to-end sales cycle, including the sales team, demo, pricing, and sales process,” states Brian. Often, there’s a serious disconnect between founders, sales teams, and the sales process. 

The solution? Integrated teams and clear communication across channels. When building financial modeling for SaaS companies, you need to be in lockstep with the sales team. “Sales and Marketing need a seat at the C-suite,” Brian says. “To achieve success, you really need to build out your world-class sales model.”

It’s important to map out your end-to-end customer journey, from brand awareness to Day One of onboarding to customer success. Once you have your customer journey map, you can more easily identify areas for improvement, where you can charge more (or less), and where you have to scale the biggest obstacles to success. 

As Brian says, “When you look at your product roadmap—you want to understand every release, every product, every section, every monetization. What does it all look like?”

financial modeling for saas


SaaS Financial Modeling is Complicated, Not Impossible

Financial modeling for a SaaS company isn’t always as straightforward as it might seem. An Excel spreadsheet and a reliable accountant are just the baseline. To really move the needle, you need a financial modeling team with the experience and expertise to help you forecast your company’s future.

An outsourced CFO is more than just a financial professional. They should think like a founder and business owner, giving you actionable insights that help you make more confident, data-driven decisions.


Meet Your New Fractional CFO

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