A SaaS Startup Financial Model Is About More Than Just Revenue Growth
By Lior Ronen | Founder, Finro Financial Consulting
Subscription-based businesses are super popular these days.
Why? Well, spend a little on getting a customer, and they keep paying you back over and over again.
It's like the gift that keeps on giving. And because of this, many SaaS companies brag about how fast they're growing.
But here's the thing: so many businesses now use this model that just talking about growth isn't enough anymore.
Investors want the inside scoop.
They want to know the plan, the big picture, and all the little details in between.
It's like saying, "Sure, your company might grow super fast, but how? Why? What's the game plan?"
Just showing off big future growth (you know, the classic 'hockey-stick' graph) isn't the wow factor it used to be.
What really matters is the story behind those numbers.
Showing Investors What's Really Going On
Ever see someone just dump a whole lot of numbers and charts into a document and say, "There you go!"? Yep, that's a common mistake when folks try to explain their business finances.
Let me tell you why that's not the best move.
Imagine you're an investor, and you've got stacks of business pitches to go through every week.
You're not going to spend hours on each one, especially not at the start.
It's a bit like speed dating; you've only got a few minutes to get the gist.
Now, while being energetic and super enthusiastic might win someone over in a face-to-face chat, that charm doesn't translate to an email.
So when you hit 'send' on your business pitch and financial plans, those docs better be clear and easy to understand.
You don't want investors scratching their heads, asking a million questions, or just moving on to the next pitch.
So how do you lay it all out without making it a confusing mess?
Here at Finro, we stick to two golden rules:
Keep It Simple, Silly! It's not just about throwing numbers at someone. Make sure those numbers tell a clear story.
Less Is More. You don't need to tell them every little thing about the business. Give them the important bits, and make sure they're not drowning in info.
Remember, the goal is to give a clear snapshot of what makes your business tick without making it feel like rocket science.
After laying out the do's and don'ts for you, it might still feel a bit theoretical. I get it.
Sometimes, the best way to understand these principles is to see them in action.
So, let's dive into a real-life example.
Imagine a startup, and let's break down how they'd present the user acquisition process from a specific channel in their financial model.
Ready to get a peek behind the curtain? Let's go!
| Do's | Don'ts |
|---|---|
| Keep charts and numbers simple and easy to understand. | Avoid overloading with too many numbers and data points. |
| Highlight the most important data points that tell your business's main story. | Don't make investors play detective. They shouldn't have to piece together the story. |
| Ensure everything is neatly laid out and follows a logical order. | Remember, more data isn't always better. Don't drown them in information. |
Example: Let's Break Down How We Get Our Users
Imagine you’re running a startup, and you want to show folks where your users are coming from. It’s not just about the big numbers; it's about the journey those users take to become your loyal customers.
Let’s zoom in on one way we get our users: Social Media Marketing (or SMM for short).
So, think of it like this:
The Ad on Social Media: You pop an ad on, say, Instagram. How many eyes do you think will land on it? That's your starting number.
The Click: Out of all those people who saw it, who's curious enough to give it a click? This shows the ad's appeal.
The Signup: Now, out of those who clicked, how many decide to sign up for what you're offering? Maybe you've got a cool trial they can try out.
From Trying to Buying: If you do have a trial, who’s loving it so much they decide to become full-time paying customers?
Sticking Around: And once they've bought into what you're selling, how many decide to stay on when it's time to renew?
By mapping out this journey, you get a real sense of how a user goes from just seeing an ad to becoming a loyal customer.
But that's just one side of the coin. Next, you've got to think about the moolah – how much are they paying?
Do you have monthly or yearly plans? Maybe different price tags for different plans?
Once you've got an idea of both the number of users and how much they're paying, you can put the two together. Boom! You’ve got your revenue model.
By showing all of this, you're giving everyone a clear picture of how you're planning to grow your business, step by step.
Summary
When building a startup financial model, your first priority should be to help the reader understand the business.
However, if you show too much information, your audience will not be able to understand what you are saying. But if you only show a little, they won't know enough about the business.
The secret is to provide enough information to help readers understand the business, but not too much to make the financial model too complex and unreadable.
To do that, we at Finro, focus on simplicity and clarity and try to balance the amount of data with the model’s clarity.
If this post has been helpful to you, let us know in the comments below.
And if you would like to build a financial model for your SaaS business. Feel free to drop us a line!
