Clients choose software as a service (SaaS) solutions because these types of solutions are flexible and scalable. Cloud-hosted products eliminate the need for local software installation and maintenance, expensive hardware such as file servers, reduce the need and reliance for an in-house infrastructure, and enable seamless adjustment of subscription needs. That applies to whether a business is adding new users, expanding storage capabilities, or opting into extra features over time. These scaling-friendly capabilities make SaaS applications extremely appealing to growing businesses.
But SaaS users aren't the only ones who should care about scalability. SaaS providers must also ensure they're ready to grow—and that they have the tools needed to stay nimble. Responding to market needs in a short amount of time with the best solution possible isn't just a "nice-to-have" scenario; it's a business imperative.
While a SaaS subscription-based model allows for future planning to some extent, SaaS forecasting still isn't easy. While it is impossible to predict the future, we can plan for the future. The best-case scenario is to be prepared, and as these scenarios begin to play out, we should know how to respond.
Picture this: your user base doubles overnight after a competitor exits the market. Are you ready? Or consider the opposite scenario—a major client cancels unexpectedly.
Growing SaaS businesses need to contend with challenges such as:
- Modeling churn rates and/or subscription growth when customer behavior can shift rapidly.
- Ensuring technological infrastructure and personnel are ready to keep pace with increased usage as the company scales.
- Tracking market trends to ensure the company stays competitive in an increasingly crowded field.
- Managing customer acquisition costs (CACs) while still aggressively pursuing growth - a delicate balancing act.
With extended financial planning and analysis (xFP&A), SaaS forecasting becomes significantly more manageable. Instead of relying on forecasting based on monthly recurring revenue growth, net revenue retention is a more crucial metric for SaaS-based businesses.
Modern xFP&A solutions are designed to help SaaS organizations to manage and automate the process compared to the manual process many companies rely on through spreadsheets. Solutions monitor their key performance indicators (KPIs), reporting, human capital analysis, driver-based planning, budgeting, scenario planning, and forecasting processes more efficiently and effectively across the entire organization. With the right tools, SaaS businesses can gain actionable insights needed for growth, ensuring the smooth and uninterrupted service on which clients rely.
Why SaaS Providers Need Dynamic Budgeting Tools
SaaS shouldn't be confused with its sisters, PaaS (Platform as a Service) and IaaS (Infrastructure as a Service). SaaS is a subscription-based model, meaning companies can expect repeat customers and at least somewhat predictable revenue. But here's the catch: it would be a mistake to assume that SaaS executives can take a "set it and forget it" approach to budgeting and financial planning.
Users can cancel or downgrade subscriptions at any time, for example. One day you're celebrating a 95% retention rate, the next you're scrambling to understand why churn spiked to 15%. Accurately predicting these fluctuations is notoriously difficult, yet budgeting and planning for potential downturns is necessary to ensure the business' continued financial health.
Equally important—and more exciting—is planning for growth. Increasing subscription rates is fantastic for a SaaS business, but only if the organization's finances, technological infrastructure, and workforce are ready and able to scale with the escalating demand. Nothing damages a growing SaaS brand faster than service disruptions during peak usage periods.
A SaaS solution's pricing scale and CACs should also be monitored dynamically to ensure that subscription costs and available features are appropriate for market conditions, and that customer acquisition is robust enough to secure new users—but not so costly as to eat up a disproportionate share of revenue.
How Extended Financial Planning and Analysis Can Foster Growth
Accurate and nimble forecasting can be make-or-break for a scaling SaaS business. The difference between companies that thrive during rapid growth and those that stumble often comes down to their ability to see around corners. Advanced planning tools provide the insights needed to make business decisions based on facts and statistical probabilities—not guesswork. A flexible budgeting and forecasting solution is designed to grow with your SaaS business as you add features, adjust pricing, and adapt to changes in the market, providing real-time insight and analysis across every aspect of your business.
A 360-Degree View of Current and Future Performance
Advanced planning solutions provide unique data fields, financial reports, budgets, subscription analyses, and dashboards that reflect products, services, and goals throughout a growing SaaS business. CFOs and other stakeholders can create customized dashboards to track a range of metrics and KPIs, both financial and operational, to gain a holistic understanding of their organization's present performance and understand the steps they need to take to optimize growth moving forward.
Think of it as your business's mission control center—every critical metric at your fingertips, updated in real-time.
A Single Source of Truth
Modern data warehouse functionality combines unlimited data sources, such as a SaaS business' ERP and subscription billing systems, to create a single source of truth. The insights gained from consolidating data analysis in a centralized location can be game-changing: model churn and growth rates with precision, improve customer retention and acquisition tactics, and optimize pricing plans based on comprehensive data decisions rather than gut instinct.
Managing recurring revenue properly also provides predictability and stability, and helps with long-term planning and forecasting as an organization expands. When all your data speaks the same language, strategic decisions become clearer.
Driver-Based Planning
Companies that use a driver-based planning strategy hone in on specific factors likely to influence their business' success—such as overall market size, subscription rates, sales numbers, and CACs—and use those variables to model various future scenarios. This dynamic extended financial planning and analysis approach helps decision-makers understand the most important factors driving growth, and how budgets, operating costs, and business strategies must be adjusted if and when key drivers change.
With sophisticated driver-based models, business leaders can make more accurate predictions. Advanced SaaS suites include hundreds of driver-based forecasting templates and allow for granular analysis of components that influence KPIs of interest, giving CFOs and other stakeholders access to the insights they need to keep a scaling business expanding—even in uncertain times.
Accurate Forecasting and Reforecasting Capabilities
Continuous planning and analysis is key to success, along with the ability to create and keep multiple versions of the business’s forecasts. The best planning tools enable scenario analysis and what-if modeling to drive strategic decision-making across a scaling SaaS organization. It becomes easy to adjust models to account for potential changes in a range of variables, from market constriction to rising CACs to subscription fluctuations. The ability to forecast—and reforecast—gives decision-makers data-driven insights that help inform important choices about feature offerings, pricing, customer acquisition and retention efforts, workforce expansion, and infrastructure fortification.
Multiple budget iterations and automated data integration enable quick pivots to changes in the market, while what-if modeling capabilities help a SaaS business become future-proof. When market conditions shift, you're not caught off guard—you're already three steps ahead.
Forecast for Scale with Solver
The most successful SaaS organizations make better-informed decisions, improve financial outcomes, and achieve ambitious growth goals by leveraging sophisticated extended financial planning and analysis capabilities. Advanced planning suites take financial planning and analysis to a new level, allowing stakeholders throughout an organization to manage planning, reporting, and analysis processes efficiently by providing real-time insights and flexible forecasting and driver-based modeling capabilities.
