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SaaS Revenue Model

Model revenue for a subscription business to make informed decisions on fundraising, scenario planning, and other endeavors.

Best for: Subscription businesses (especially SaaS) who need to create a top-line outlook for the business.
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What's Inside

Revenue modeling for a subscription business is fundamentally different because of the concept of annual recurring revenue (ARR).

This template includes a detailed ARR table that breaks out the components of growth into new ARR, expansion ARR, contraction ARR, and churned ARR.

ARR is a snapshot of a single point in time, while revenue is a measurement over a period of time (i.e., how much revenue did you earn in a month or quarter?). Apples and oranges.

To get from ARR to GAAP revenue, we amortize our ARR forecast over anticipated contractual terms, creating a GAAP revenue forecast. For an annual contract, this means dividing the forecasted ARR by 12 months (the life of the contract).

Use with Cube

This is an Excel template. You don't need to be a Cube customer to use it!

But if you are a Cube user, you can start using this template in under two minutes. Here's how.

Step 1: Open the template in Excel or Sheets.

Step 2: Customize the row and column headers to match your Cube's dimensions and filters.

Step 3: Select the range where you want to fetch your data. 

Step 4: Fetch your data.

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All About SaaS Revenue

It’s in the name! SaaS revenue is generated from a subscription pricing model. Many SaaS companies will have products and tiers and then vary their pricing per account by things like features, data usage, user licenses, or integrations. It’s also common for companies who have subscription products to generate revenue from non-subscription sources, such as consulting and professional services.

Additionally, leveraging a subscription revenue model not only provides a steady and predictable income stream for SaaS businesses but also fosters a long-term relationship with customers. The recurring payments allow companies to scale efficiently while focusing on customer retention and satisfaction.

Here are a few key terms you need to know about SaaS revenue:

ARR: A key metric used by SaaS or subscription businesses to measure the annual run rate of recurring revenue from the current install base. It represents the annual revenue for the next 12 months. Some companies use MRR (monthly recurring revenue), which is the same concept as ARR but expressed monthly.

New ARR: The increase in ARR driven by onboarding new customers during the month.

Expansion ARR: The increase in ARR driven by growth from existing customers during the month. Expansion can be driven by a few factors, including product upgrades, increase in user counts, and price increases.

Contraction ARR: The decrease in ARR driven by declines from existing customers who remain customers at the end of the period, but at a lower ARR. (For example, they downgraded to a lower-cost tier.)

Churn ARR: Lost ARR from churned customers during the month.

Avoiding Mistakes in SaaS Revenue Modeling

Avoiding these common missteps ensures that your SaaS Revenue Model template remains a reliable compass in steering your business towards sustained growth.

Ignoring Variable Costs: Overlooking variable costs, such as customer acquisition expenses or server costs, can result in inaccurate financial projections. Ensure all aspects of your expenditure are accounted for in your template.

Underestimating Churn Rates: A miscalculation in churn rates can throw off your revenue forecasts. Be realistic and factor in potential customer attrition to maintain a more accurate projection of your subscription-based revenue.

Overlooking Seasonal Trends: Forgetting to incorporate seasonal trends can lead to skewed predictions. Analyze historical data and adjust your template to accommodate any recurring patterns in your SaaS revenue.

Disregarding Customer Segmentation: Treating all customers alike in your template might mask valuable insights. Implement customer segmentation to tailor your revenue model, considering different subscription tiers, pricing plans, and customer demographics.

Additional Resources

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