SaaS Revenue Modeling

SaaS (Software as a Service) revenue modeling is essential for understanding and projecting the financial aspects of a SaaS business. Let’s break down the critical components of building a SaaS revenue model:

1. Forecast New Users:

• SaaS revenue directly correlates with the number of users or accounts. Monthly Recurring Revenue (MRR) is calculated as: MRR=Users×Monthly Pricing
• To forecast revenue, estimate the number of new users you’ll acquire over time. There are two approaches:
  1. Inbound Growth: Based on website visitors and conversion rates.
     • Example: If your website receives 10,000 monthly visitors with a 3% conversion rate, you will acquire 300 new users.
  2. Outbound Growth: Relies on sales reps’ efficiency.
     • Example: With five sales reps closing ten new accounts monthly, you’d convert 1,500 new users (assuming each account has 30 users)

2. Split Users per Tier and Billing Cycle:

• Segment new users into different subscription plans (tiers). Assume the following distribution:
  1. Free: 40% new users
  2. Paid: 30%
  3. Premium: 20%
  4. Corporate: 10%
• Adjust percentages if you offer monthly vs. annual billing.

3. Forecast Active Users:

• Active users are crucial for calculating Churn Rate and Lifetime Value (LTV) metrics.
• Understand the terms:
  1. Monthly Active Users (MAU): Users who engage with your SaaS product in a month.
  2. Daily Active Users (DAU): Users who interact with your product daily.
  3. Churn Rate: The percentage of users who stop using your service.
  4. LTV: The total revenue a user generates during their lifetime.

Remember, a well-constructed SaaS revenue model helps you make informed decisions, optimize pricing, and plan for sustainable growth.