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:
- 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.
- 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)
- Inbound Growth: Based on website visitors and conversion rates.
2. Split Users per Tier and Billing Cycle:
- Segment new users into different subscription plans (tiers). Assume the following distribution:
- Free: 40% new users
- Paid: 30%
- Premium: 20%
- 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:
- Monthly Active Users (MAU): Users who engage with your SaaS product in a month.
- Daily Active Users (DAU): Users who interact with your product daily.
- Churn Rate: The percentage of users who stop using your service.
- 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.
