SaaS Revenue Projections & Forecasts
Learn More - See How we Project Revenues in SaaSOptics
Components of SaaS Revenue Projections / Forecasts
Three distinct revenue projections from three different revenue sources are needed to create an accurate SaaS revenue forecast:
1 SaaS revenues from existing contracts
2 SaaS revenue projections from the renewals of existing contracts
3 Saas revenue projections from new contracts (new sales/contracts)
SaaS Optics can generate revenue projections for all three sources and is your most accurate tool for projecting revenue. Why?
Most excel models project future revenue by adding a high-level, single line projection of renewal data to the detailed revenue schedules for existing contracts. In SaaS Optics, revenues from future renewals are actually projected at the transaction level. New sales can also be projected at the transaction level. This level of revenue detail is too cumbersome to manage in a spreadsheet, but is made easy by SaaS Optics. In the image of a projection report below, you can see the composition of the revenue forecast for a single customer. Naturally, the report can be run at an aggregate level.
Revenue Forecast Details
1. Revenues from Existing Contracts
If you have a sophisticated financial accounting system, it is likely you have a handle on the revenue schedules from existing contracts. Yet for projections and analysis. it is common to see revenue schedules managed in a spreadsheet. If you rely on a spreadsheet, it is possibly because it is the only way of dealing with the numerous and confusing revenue recognition policies you work out with your accountants and auditors.
SaaS Optics handles a wide variety of revenue recognition issues and schedules, including:
- Recognizing one-time license and set-up fees over any period, including the agreement term or a period other than the term, such as the expected average client life cycle
- Recognizing ad hoc or other professional service fees, again over any period
- Recognizing subscription service fees over the term of the agreement
- Recognizing variable subscription fees
2. Revenue Projection from Future Renewed Contracts/Terms
Of the three inputs, this is the most difficult revenue stream to generate in a spreadsheet. SaaS Optics provides distinct ways for you to project revenue from future renewals. You can:
- Project using a single statistical number, which while not as accurate (see the article on the problems with a simple SaaS churn rate), is excellent for what-if analysis.
- Project using a combination of contract specific renewal rates for customers with whom you have renewal insight, along with a broadly applied renewal rate for the rest.
- Project using different renewal rates by term - Customer Life Cycle Renewal Curve - that generates revenue schedules by applying the appropriate renewal rate for each contract based on where the contract is in its term life cycle. For many subscription businesses, this provides the most accurate statistical projection.
3. Revenue Projection from New Contract (new sales/contracts)
Your sales team and CRM/SFA system will help you (to a certain degree) project new sales, but you still need to generate revenue schedules. Financial accounting systems are designed to deal with actual transactions, so again you go back to a spreadsheet.
SaaS Optics readily handles the generation of revenue schedules of the sales forecast either at an aggregate level or at a customer by customer level depending on the volume of forecasted opportunities in your forecast.
