Creating a Financial Model for a SaaS
Sturppy allows you to create the financial model for any subscriptions businesses.
Creating a financial model for a SaaS business is very easy with Sturppy. The steps that we will follow are the standard ones for creating a financial model: defining customer acquisition, creating the various plans and finally listing the expenses.
Step 1: Defining Customer Acquisition
To create a customers acquisition projection navigate to
/Users/Acquisition, here we will define how we are going to get new customers.
Here we can add different traffic sources that will bring in traffic and, in turn, customers.
When adding a new traffic source you can define:
- Name: this is the name that you assing to this traffic source, we suggest you use the marketing channel where you are going to advertise on, like Facebook Ads, Google Ads or SEO.
- Paid or Free: this is the type of the traffic source, either paid or free. A paid traffic source is any source that requires a direct investment of money.
Then, based on the type of the traffic source you decided, you have to enter:
If you want to add a paid traffic source, then you have to define:
- Monthly Budget: how much you are going to spend each month on this traffic source.
- CPL (Cost per Lead): how much each lead from this traffic source will cost you.
It is possible that you already have a traffic source called Marketing. This is completely fine. This source was created when you followed the steps in the onboarding to create your first financial model. You can keep it, edit it or remove it and add a new one.
To add a free traffic source, you need to define:
- Organic Monthly Traffic: this is how much traffic you are generating every month. Depending on your source, this could come from your social media presence, SEO, content, word of mouth or others.
- Conversion Rate: the percent of free traffic that becomes a lead. Since this is free and not very targeted traffic, conversion rates are usually low.
At the end we will calculate the number of leads that you are going to receive.
Paid Leads = monthly budget / CPL
Free Leads = monthly traffic * conversion rate
You can add as many different traffic sources as you want.
Be carefull when adding free traffic sources. You can easily be over-optimistic and tilt your projections.
Free traffic can come from an existing social media presence, PR, SEO (this requires time) and other sources.
Step 2: Creating the Plans
To create the various plans that you are offering, go to
/Revenues/Subscriptions, here you will be able to configure everything you need in just a single page.
There are a couple of things that you can configure when creating a Subscription model, we will go over all of them.
This is the percentage of leads that become paying customers. You can learn more here.
The percentage of customers that don't renew their subscription each following month. You can learn more here.
These are the fees that you are going to pay whenever you receive a payment from one of your customers. This are usually fees related to the processing of the payment.
With Sturppy is also super easy to account for free trials. If you offer a free trial and don't receive any payment unless the trial is converted to an actual paying subscription, then check the box.
A new field called Trial Conversion Rate will appaer. This is used to define the percentage of free trials that convert to a paying subscription.
Finally enter all the plans that you offer. You can learn more here.
At the end, you will have the projections of your subscribers and of your revenue. You can also check out the distribution of these numbers by their traffic source.
If you offer a free trial or you have a freemium model, make sure to enable Has free trial? so your projections will be more accurate.
Also don't forget to adjust the two conversion rates. The rate for trial to paid should be higher than the other, since the user has already shown interest.
Step 3: Listing your Expenses
For the final part we will add the expenses to the financial model. Adding expenses is super important and should be done with great attention to avoid missing key expenses that could turn the startup upside down.
The expenses for a SaaS business are mostly expenses associated to human resources, especially if you are selling software. We will go over each expense that you can add, but you can always go in more detail on the ones that you are most interested about.
COGS: Cost of Goods Sold
For a SaaS these costs aren't really a lot (fortunately!). Here you can add the cost per thousand customers, which reflects the load that your infrastructure will neeed to handle as more customers come using your product (think about how you will need more and better servers to handle the increasing load).
You can also add any fixed cost that you need to face monthly, directly linked to your product. For instance if you are using an external piece of software integrated in your product you will need to add it's monthly cost here (think about all the APIs that you will use, like programmatic emails, etc.).
If you want to learn more about COGS, read here.
SG&A: Selling, General & Administrative
This will be your main cost when running a SaaS company. The team behind your product will make your startup go big or go home and so it is of rightfully the biggest cost you have to face.
Be sure to list all of your current employees and those that you will hire in the future, plus, set up rules to hire them automatically as more customers come in.
We have a complete section dedicated to the hiring plan.
Don't make the mistake of not adding the salary of the founders to your SG&A.
The financial model has to be complete and is needed to forecast your startup not to show the spirit of sacrifice of the founders.
CAPEX: Capital Expenditure
If you need to invest any significant amount of money in buying equipment for your startup, you have to add it here. For instance, all the technical equipment, like computers, monitors and office furniture should be added here.
Also, if you need to buy any software, or have an external agency build it for you, you have to add the cost here.
If you want to learn more about CAPEX, read here.
You should now have a solid financial model, but you can always go back in and add more details and tweak the assumptions. You now have access to all the financial statements, metrics and scenario planning.
Don't forget that you can also add other monetization modes, such as: sales and transactions and you can also add your various operating activities.
Don't forget that you can now go live and connect your forecast to your actual live data!Learn more