Finance Case Study: SaaS Startup Financial Model

Instructions: create a financial model for the following business, layout metrics to track performance, and discuss risks / op

1. Create a 2 year forecast.

Startup: bottoms-up B2B SaaS Business (like Slack)

Make assumptions to build out a realistic financial model.

Need to build a model from the following starting point:

Monthly price $12.99
3,100 active users
2.1% monthly user churn
5.6 employee average company size, but increases over time.
15 month gross margin CAC payback for company, but slowly decreases over time.
15% monthly new user growth rate in year 1, 12% in year 2.

M1 M2 M3 M4 M5
Users
Starting 3,100 3,100 3,500 3,951 4,461
Churn Rate 2.10% 2.10% 2.10% 2.10%
Churned (65) (74) (83) (94)
Growth Rate 15.00% 15.00% 15.00% 15.00%
New 465 525 593 669
Total Net Users 3,100 3,500 3,951 4,461 5,036

Users / Company 5.6 5.6 5.7 5.8 5.9

Active Companies 554 625 693 769 854
Net Added Companies 71 68 76 85

Revenue $ 40,269 $ 45,465 $ 51,323 $ 57,948 $ 65,418

COGS 6,846 7,729 8,725 9,851 11,121
Gross Margin $ 33,423 $ 37,736 $ 42,598 $ 48,097 $ 54,297
GM % 83% 83% 83% 83% 83%

Operating Expenses
Salaries $ 28,333 $ 28,333 $ 28,333 $ 35,417 $ 35,417
Benefits, Taxes, Etc. 7,083 7,083 7,083 8,854 8,854
Marketing Expenses 60,000 64,302 61,245 68,070 75,706
Consultants 7,083 7,083 7,083 8,854 8,854
Miscellaneous 10,000 10,000 10,000 10,000 10,000
Total OPEX $ 112,500 $ 116,802 $ 113,745 $ 131,195 $ 138,831

Operating Income $ (79,077) $ (79,066) $ (71,147) $ (83,098) $ (84,535)

EBIT % -196% -174% -139% -143% -129%

Money Raised $ 1,250,000

Cash Balance $ 500,000 $ 1,670,934 $ 1,599,787 $ 1,516,689 $ 1,432,154
Assumptions

Customer Acquisition Cost $ 906 $ 906 $ 901 $ 896 $ 891

Companies / Employee (EE) 150 155 160 165 170

Total Employees 4 4 4 5 5
Avg Annual Salary $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
Benefits, Taxes, Etc 25% 25% 25% 25% 25%

Consultants as % of Payroll 25% 25% 25% 25% 25%

Miscallaneous Exp $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

2. Layout & calculate best metrics to track business performance

Lifetime Value (Company) $ 2,875 $ 2,875 $ 2,926 $ 2,978 $ 3,029

CAC $ 906 $ 906 $ 901 $ 896 $ 891
LTV: CAC Ratio 3.17 3.17 3.25 3.32 3.40

Annual Recurring Revenue $ 483,228 $ 545,580 $ 615,882 $ 695,381 $ 785,012

Monthly Recurring Revenue $ 40,269 $ 45,465 $ 51,323 $ 57,948 $ 65,418

Net Burn $ 79,066 $ 71,147 $ 83,098 $ 84,535

Net New ARR $ 62,352 $ 70,302 $ 79,499 $ 89,631
Burn Multiple 1.27 1.01 1.05 0.94

*Puts focus on burn as a muiltiple of new revenue growth.

<1X Amazing *Great measure of product-market fit.

1-1.5X Great https://medium.com/craft-ventures/the-burn-
1.5-2X Good
2-3X Suspect
>3X Bad

3. Opportunities, risks, recommendations

Opportunities
Spend more on marketing - grow faster given that our efficiency is so high, we can tolerate a much higher CAC to accelerat
Try to create usage-based feature to increase revenue / user.
Cross sell other products via affiliate partnerships (instead of building them ourselves).
If we slow growth down to 5% we become instantly profitable => powerful level in emergencies.
What changes can we make to our product to reduce churn?
Start enterprise sales team to sell top-down into larger companies and push our average customers / company up more qu

Risks
Churn, we have to rebuild our customer base completely from scratch every 3-4 years at a 25% annual churn, we could run
Churn can go much higer than 2.1%, 5% would mean we lose 60% of our customers in a year.
CAC can always spike if we are heavily dependent on paid advertising.

Recommendations
Layout vision of getting to over 100K paying users (17K companies), which would get us to $15MM ARR in 3 years (15X rev
Use increased efficiency in OPEX to re-invest in marketing.
Allow CAC to rise and burn multiple to go as high as 1, scaling much more quickly than this model.
Launch 1 month free trial to increase customer acquisition / leads.
Launch referral program with multi-month discounts for both parties.
Hire enterprise sales team to sell top down.
Identify the largest non-english speaking market to begin selling into, and localize product for it.
Continue to tap venture markets to fund CAC as long as conditions allow.
From the $15MM ARR target, try to double the business annual for 3 consecutive year to hit $120MM ARR and IPO.
rmance, and discuss risks / opportunities / recommendations.

LTV (1 user) LTV (company)

Price $ 12.99 $ 72.74
Users 1.0 5.6
Churn 2.10% 2.10%
Lifetime 47.6 47.6
LT Rev $ 618.6 $ 3,464
GM % 83% 83%
LTV $ 513.4 $ 2,875.1
Monthly GM $ 10.78 $ 60.38
CAC $ 906 *Customer acquisition cost

M6 M7 M8 M9 M10 M11 M12

5,036 5,685 6,419 7,247 8,182 9,237 10,429

2.10% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10%
(106) (119) (135) (152) (172) (194) (219)
15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
755 853 963 1087 1227 1386 1564
5,685 6,419 7,247 8,182 9,237 10,429 11,774

6.00 6.1 6.2 6.3 6.4 6.5 6.6

948 1052 1169 1299 1443 1604 1784
94 104 117 130 144 161 180

$ 73,848 $ 83,383 $ 94,139 $ 106,284 $ 119,989 $ 135,473 $ 152,944

12,554 14,175 16,004 18,068 20,398 23,030 26,001
$ 61,294 $ 69,208 $ 78,135 $ 88,216 $ 99,591 $ 112,442 $ 126,944
83% 83% 83% 83% 83% 83% 83%

$ 35,417 $ 42,500 $ 42,500 $ 49,583 $ 49,583 $ 56,667 $ 63,750

8,854 10,625 10,625 12,396 12,396 14,167 15,938
83,252 91,589 102,453 113,186 124,655 138,567 154,019
8,854 10,625 10,625 12,396 12,396 14,167 15,938
10,000 10,000 10,000 10,000 10,000 10,000 10,000
$ 146,377 $ 165,339 $ 176,203 $ 197,561 $ 209,030 $ 233,567 $ 259,644

$ (85,083) $ (96,131) $ (98,068) $ (109,345) $ (109,440) $ (121,124) $ (132,701)

-115% -115% -104% -103% -91% -89% -87%

$ 1,347,071 $ 1,250,940 $ 1,152,872 $ 1,043,527 $ 934,087 $ 812,963 $ 680,262

 $ 886 $ 881 $ 876 $ 871 $ 866 $ 861 $ 856

175 180 185 190 195 200 205

5 6 6 7 7 8 9
$ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
25% 25% 25% 25% 25% 25% 25%

25% 25% 25% 25% 25% 25% 25%

$ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

$ 3,080 $ 3,132 $ 3,183 $ 3,235 $ 3,286 $ 3,337 $ 3,389

$ 886 $ 881 $ 876 $ 871 $ 866 $ 861 $ 856
3.48 3.56 3.64 3.71 3.80 3.88 3.96

$ 886,178 $ 1,000,594 $ 1,129,662 $ 1,275,410 $ 1,439,864 $ 1,625,673 $ 1,835,331

$ 73,848 $ 83,383 $ 94,139 $ 106,284 $ 119,989 $ 135,473 $ 152,944

$ 85,083 $ 96,131 $ 98,068 $ 109,345 $ 109,440 $ 121,124 $ 132,701

$ 101,166 $ 114,416 $ 129,069 $ 145,748 $ 164,453 $ 185,809 $ 209,659
0.84 0.84 0.76 0.75 0.67 0.65 0.63

of product-market fit.
com/craft-ventures/the-burn-multiple-51a7e43cb200

much higher CAC to accelerate growth.

tomers / company up more quickly.

5% annual churn, we could run out of TAM (addressable market) to sell into.

5MM ARR in 3 years (15X rev multiple, $225MM valuation)

$120MM ARR and IPO.
 M13 M14 M15 M16 M17 M18 M19

11,774 12,940 14,221 15,629 17,176 18,876 20,745

2.10% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10%
(247) (272) (299) (328) (361) (396) (436)
12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
1413 1553 1707 1875 2061 2265 2489
12,940 14,221 15,629 17,176 18,876 20,745 22,798

6.7 6.8 6.9 7 7.1 7.2 7.3

1931 2091 2265 2454 2659 2881 3123
147 160 174 189 205 222 242

$ 168,091 $ 184,731 $ 203,021 $ 223,116 $ 245,199 $ 269,478 $ 296,146

28,575 31,404 34,514 37,930 41,684 45,811 50,345
$ 139,515 $ 153,327 $ 168,507 $ 185,186 $ 203,515 $ 223,666 $ 245,801
83% 83% 83% 83% 83% 83% 83%

$ 63,750 $ 70,833 $ 70,833 $ 77,917 $ 85,000 $ 85,000 $ 92,083

15,938 17,708 17,708 19,479 21,250 21,250 23,021
125,047 135,306 146,275 157,940 170,286 183,297 198,600
15,938 17,708 17,708 19,479 21,250 21,250 23,021
20,000 20,000 20,000 20,000 20,000 20,000 20,000
$ 240,672 $ 261,556 $ 272,525 $ 294,815 $ 317,786 $ 330,797 $ 356,725

$ (101,157) $ (108,229) $ (104,018) $ (109,629) $ (114,271) $ (107,131) $ (110,924)

-60% -59% -51% -49% -47% -40% -37%

$ 1,000,000
$ 579,105 $ 470,875 $ 366,857 $ 1,257,229 $ 1,142,958 $ 1,035,827 $ 924,903
$ 851 $ 846 $ 841 $ 836 $ 831 $ 826 $ 821

210 215 220 225 230 235 240

9 10 10 11 12 12 13
$ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
25% 25% 25% 25% 25% 25% 25%

25% 25% 25% 25% 25% 25% 25%

$ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000

$ 3,440 $ 3,491 $ 3,543 $ 3,594 $ 3,645 $ 3,697 $ 3,748

$ 851 $ 846 $ 841 $ 836 $ 831 $ 826 $ 821
4.04 4.13 4.21 4.30 4.39 4.48 4.57

$ 2,017,087 $ 2,216,769 $ 2,436,249 $ 2,677,395 $ 2,942,391 $ 3,233,731 $ 3,553,752

$ 168,091 $ 184,731 $ 203,021 $ 223,116 $ 245,199 $ 269,478 $ 296,146

$ 101,157 $ 108,229 $ 104,018 $ 109,629 $ 114,271 $ 107,131 $ 110,924

$ 181,756 $ 199,682 $ 219,479 $ 241,146 $ 264,996 $ 291,340 $ 320,022
0.56 0.54 0.47 0.45 0.43 0.37 0.35
 M20 M21 M22 M23 M24

22,798 25,055 27,536 30,262 33,257

2.10% 2.10% 2.10% 2.10% 2.10%
(479) (526) (578) (636) (698)
12.00% 12.00% 12.00% 12.00% 12.00%
2736 3007 3304 3631 3991
25,055 27,536 30,262 33,257 36,550

7.4 7.5 7.6 7.7 7.8

3386 3671 3982 4319 4686
263 285 311 337 367

$ 325,464 $ 357,693 $ 393,103 $ 432,008 $ 474,785

55,329 60,808 66,828 73,441 80,713
$ 270,135 $ 296,885 $ 326,276 $ 358,567 $ 394,071
83% 83% 83% 83% 83%

$ 99,167 $ 106,250 $ 113,333 $ 120,417 $ 127,500

24,792 26,563 28,333 30,104 31,875
214,519 231,039 250,561 269,823 292,008
24,792 26,563 28,333 30,104 31,875
20,000 20,000 20,000 20,000 20,000
$ 383,269 $ 410,414 $ 440,561 $ 470,448 $ 503,258

$ (113,134) $ (113,529) $ (114,285) $ (111,881) $ (109,187)

-35% -32% -29% -26% -23%

$ 811,769 $ 698,240 $ 583,955 $ 472,074 $ 362,886

$ 816 $ 811 $ 806 $ 801 $ 796

245 250 255 260 265

14 15 16 17 18
$ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
25% 25% 25% 25% 25%

25% 25% 25% 25% 25%

$ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000

$ 3,799 $ 3,851 $ 3,902 $ 3,953 $ 4,005

$ 816 $ 811 $ 806 $ 801 $ 796
4.66 4.75 4.84 4.94 5.03

$ 3,905,573 $ 4,292,312 $ 4,717,241 $ 5,184,101 $ 5,697,414

$ 325,464 $ 357,693 $ 393,103 $ 432,008 $ 474,785

$ 113,134 $ 113,529 $ 114,285 $ 111,881 $ 109,187

$ 351,821 $ 386,738 $ 424,929 $ 466,861 $ 513,313
0.32 0.29 0.27 0.24 0.21