When it comes to forecasting for a SaaS business, traditional financial metrics won’t get the job done. The lack of good financial data and metrics remains a big problem for most early stage subscription businesses, and even many established SaaS companies. Chances are, your business relies on outside funding or is subject to board oversight—or both. And the decisions that funders and boards make rely on accurate financial forecasting. A SaaS business that can efficiently and accurately generate, present and consume financial forecasting data makes better decisions for continued success. Don’t let your financials become a liability. Instead, you should be using forecasting data as a strategic tool to drive growth, generate new revenues and increase profitability.
Managing the financial operations of recurring revenue businesses is more complex than traditional businesses because the revenue comes in over time. Thus, traditional business metrics and forecasting models fail to capture the key factors that drive SaaS performance. First and foremost, you need to eliminate as many manual processes as possible, including supplementing QuickBooks with spreadsheets. This practice is error-prone, resulting in faulty forecasting data that could either be too positive or too negative. Plus, it also cannot deliver more sophisticated forecasts that enable higher-level analysis of the business.
If you’re using QuickBooks, at some point, you end up relying on disconnected spreadsheets to run your financial operations. Using spreadsheets makes it hard to see a steady growth trajectory. SaaS businesses need the ability to see the company’s recurring revenue run rate over the last 12 months. You also need to see and assess more complex metrics like churn, customer lifetime value and cohort analysis. What’s more, this shouldn’t require an army of accounting and finance resources weeks to compile because they’re sorting through multiple spreadsheets.
High growth SaaS businesses are turning to cloud-based subscription management solutions that provide everything needed for GAAP compliant revenue recognition, subscription management, invoicing and analytics. These types of solutions also enable companies to quickly generate accurate revenue reports and key growth related metrics and analytics like cohort, MRR, Churn and CLV.
Revenue recognition and MRR are vital to forecasting. As your business grows, these metrics become even more important, but also more complex and difficult to capture. New revenue recognition rules, multi-element arrangement and deferred revenues can further complicate your forecasts. For complete revenue management, you need an automated solution that records and reports on all key revenue numbers, including reportable revenue, deferred revenue and unbilled accrued revenue, so you don’t have to wrangle with spreadsheets or worry about wasted time and resources.
Your forecasting will also benefit from real-time visibility into deferred revenue values that are easy to manage and automatically calculated – daily, weekly or monthly. When subscription terms and processes change, make sure your deferred revenue can scale. This will preserve the accuracy of forecasts.
Once you’ve experienced an automated subscription management solution that syncs with QuickBooks, you can start to reap the benefits of accurate financial metrics and forecasting. SaaS forecasting metrics are much more than just numbers to be delivered to management, the board or investors. Used properly, they provide operational insight, enable decision-making, and help you run and grow your business