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What's the model for doing SaaS user and financial projections?

How do you create a financial plan for a SaaS startup?
I plan to have 4 packages: freemium, basic, advance and premium.
All my users will start with freemium plan, and move to the next plan by the volume of their usage. Their volume of usage depends on my customers' customer growth, The more customers they have the more SaaS volume they will use.
How can I project my numbers? How can I project the number of customers will move to the next plan every month?

9 Replies

Mike Rozlog
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Mike Rozlog Advisor
Advisor at TechColumbus

This is the problem for any new service or product; what will the adoption rate be for acquiring, maintaining and managing customers throughout the customer lifecycle. There are formulas that you can find on the web that may help you, however my suggestion is regardless of the methodology used to define how you acquire the first paying customer, how you handle a loss of a customer, and how you move a customer up the value chain that you model three scenarios, worst-case, expected case, and awesome case.

I have witnessed investors lose-interest by painting the only rosy picture and by no means am I stating you should not have a explosive growth scenario if it is warranted, but I have found a lot of interest in what are you going to do if it is not a explosive. The worst case scenario should still allow for investor payout/exit and full funding of the operation. In your scenario, I would also cover customer not only moving up your value chain but also what percentage per month may go down the chain, as you state you have a freemium, basic, advance and premium. Can a customer paying month one month as a premium subscription move to an advanced, basic? Do you allow for your customers to go from pay to free, what percentage of customers will be doing that per month, how do these customer churn situation affects your subscription rates.

What are the on-going plans for moving customers up the chain, while still trying to acquire new customers per month? I will make the assumption that marketing dollars are going to be spent on each segment, acquire new customer, maintain and move up customers, and how to reacquire customers that may have left the service. Hope this helps.

Dan Echo
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Dan Echo Entrepreneur
Producer at Mugen Studios
Have you done enough customer surveys to find out " how much value would the service bring them?". Sent from phone...please excuse errors. This item/document/material contains CONFIDENTIAL TRADE SECRET INFORMATION owned by Mugen Studios and/or its affiliated companies. This information is protected by applicable state law and may be protected by the federal Economic Espionage Act OF 1996 (18 U.S.C. Sec. 1831), which provides for criminal penalties of up to 15 years in prison and/or a $5 million fine for stealing, receiving, possessing and/or duplicating any information contained herein.
Janiv Ratson
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Janiv Ratson Entrepreneur • Advisor
R&D Manager & Israel R&D Site Manager
Thank you all for your replies.
The resources you gave me are great, and I'm already using some of them. However, they are all covering the formulas, which I believe is the easier part.
However, I need to feel those cells with data in the excel sheets, and I have no clue where to get the numbers themselves from.
I run an early-stage startup and I don't know how to project my customers' growth (as they affect my revenues).

@rick, The link you sent me requires a credit card. We are an early-stage startup and we don't have a card yet, neither money to pay for services. I came to this forum to get help, rather than get exposure to an advertisement. If I had money, I'd go to a counselor.
If you can send me the relevant resources for free, I'd be grateful, if you expect me to pay for them, not here please.

Thanks again,
Janiv,
Rick Chapman
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Rick Chapman Entrepreneur
Managing Editor and Publisher at Softletter
What numbers? Your conversion to sales numbers from freemium?

Standard conversion figures are in SaaS Entrepreneur. However, I'd be careful of using a freemium program as it sets certain expectations in the mind of the purchaser.

Rick Chapman
www.softletter.com
www.saasuniversity.com
Author "SaaS Entrepreneur: The Definitive Guide to Success in Your Cloud Application Business"
Read Excerpts from all 10 chapters at http://www.saasentrepreneur.com
Author "Rule-Set: A Novel of a Quantum Future." Just Released. More info at http://www.rule-set.com
Janiv Ratson
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Janiv Ratson Entrepreneur • Advisor
R&D Manager & Israel R&D Site Manager
By numbers I mean how many users will join in the first month? What would be my growth? How many users will move from freemium to basic and when? How many paying customers I'll have after 12 months?
etc.

Thanks again.
Janiv.
Alex Eckelberry
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Alex Eckelberry Advisor
CEO at Meros.io
As a veteran CEO who has done more forecasting than I care to count, in the end, you must realize that forecasting is not foresight.

Conversion rates on Freemium are typically 1-2%. So you can look at your distribution model (how much free can you get out there) and then calculate a conversion rate based on that. This is at least a starting point. The key is understanding how many downloads and trials you can get, and then you can take it from there.

There is a lot of art that goes into good forecasting. There is not much science. Every spreadsheet that I have seen that is formulaic-based turns out to be horseshit.

It's virtually impossible to project accurately without any historical data. So you will just need to wing it and then as you get more data, continually modify and amend your projections.

Base it in reality and get agreement from the rest of the team that it's real, and you'll make progress. A lot of forecasting is basically deciding what the number will be from the outset and then going out and getting it. Obviously, not pie-in-the-sky, but a real forecast. I know that sounds weird, but when I've gone back and looked at old forecasts where I just took that viewoint, they turned out accurate.

Good luck.
Rick Chapman
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Rick Chapman Entrepreneur
Managing Editor and Publisher at Softletter
That's really not a question anyone can answer without knowing a great deal about your market, business plan, marketing plan, etc.

rick
Mike Rozlog
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Mike Rozlog Advisor
Advisor at TechColumbus
Janiv, if I knew for certain the number of customers I would attain and how I would get the first sale and build from there and know how they would grow, I would not have to use a formula to try to figure it out. As stated by others, the conversations that you are having with your beta customers, surveying potential markets, and going to trade shows to compare competition can all be used to help figure out a starting market/share number.

The old stand-by which I don't recommend, but many people us it because it gives them a starting number... How big is your market? (this could get into a whole lot of conversations on determining a market - blue ocean or red ocean scenario) If the service could capture 1% of that market of all potential buyers would that be enough for MVP? Would that be your goal for the first year as an example, then back into the solution if the total market size is 1200 and you want to own 1% of that market in a year, then you will need to get 12 customers over a 12 month period. In this case does the one paying customer a month make it so you reach MVP? I have added another series of questions that you may want to ask you and your team as you try to figure out the starting numbers.

Are the price points established going to be a main driver sales (value add)? Talking to your beta people, what is the feedback, what kind of ROI do they see, would they be willing to pay for the service you are providing. What are your benefits to your customers, can you measure savings in personnel, time, process that the buying of the service is a no question? How are you establishing your levels of product (Feature Set. Is there enough separation between the levels and enough features to make it attractive to move up the chain. In addition, as stated by someone else in this thread, a Freemium establishes the lowest acceptable feature set that is FREE and of no value, which means it has to be as bug free as possible because you are establishing that level of product is FREE, but if it is buggy, there will be no looking up the chain because if the free level is broken the others must be as well (thinking like a customer). In some cases it makes sense to develop for time and resources your MVP level product first and then after you get your first customer you can deactivate features down towards Freemium to grow the adoption.

Besides trying to model your sales, this exercise is used by marketing to figure out how are the messages being crafted to help in all that is going on with the introduction of your service. This can dictate the amount of $$$ you will need to spend on awareness, attainment, and thought leadership. Hope this makes sense.
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