Forecast your Revenues

A sales forecast for SaaS companies is a process of estimating future revenue based on historical data, current trends, and other factors. It is important for SaaS companies to have accurate sales forecasts because they rely on recurring revenue from subscriptions.

There are many different ways to forecast sales for SaaS companies, but some of the most common methods include:

• Historical data: This method uses past sales data to predict future sales. For example, a company might look at its average monthly revenue growth over the past year to estimate its revenue for the next year.
• Bottom-up forecasting: This method involves forecasting sales for each individual customer or segment of customers. For example, a company might forecast sales for its enterprise customers, small business customers, and individual customers separately.
• Top-down forecasting: This method starts with a high-level forecast of the overall market and then breaks it down into smaller forecasts for specific product categories, geographies, and customer segments.

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To forecast revenue for a SaaS company you can follow these steps:

1. Segment your customers based on their Customer Health Score and satisfaction. You can use a simple two-segment approach (healthy/at-risk) or a more detailed approach with three or more segments (healthy/at-risk/unhealthy).
2. Calculate the average revenue per account (ARPA) for each segment. This will give you a baseline for how much revenue each segment can generate.
3. Apply a weight to each segment based on their health score and satisfaction. For example, you could give healthy customers a weight of 1, at-risk customers a weight of 0.5, and unhealthy customers a weight of 0.25.
4. Multiply the ARPC for each segment by the weight for that segment to get a weighted ARPC.
5. Sum the weighted ARPCs for all segments to get your overall revenue forecast.

Here is an example:

To forecast ARR in a SaaS company, you can use the following steps:

1. Understand your ARR components. ARR is made up of three main components:
2. New customer revenue: This is the revenue from new customers who sign up for your subscription service.
3. Expansion revenue: This is the revenue from existing customers who upgrade to higher-tier plans or add more users.
4. Contraction revenue: This is the revenue from existing customers who downgrade to lower-tier plans or cancel their subscriptions.

To forecast ARR, you need to forecast each of these components separately.

1. Forecast new customer revenue. To forecast new customer revenue, you need to estimate the number of new customers you expect to acquire in the future and the average revenue per customer (ARPC). You can estimate the number of new customers by looking at your historical growth rate and industry trends. You can estimate ARPC by looking at your current ARPC and factoring in any changes you expect to make to your pricing or product offerings.
2. Forecast expansion revenue. To forecast expansion revenue, you need to estimate the percentage of existing customers who are likely to upgrade or expand their subscriptions in the future. You can estimate this percentage by looking at your historical expansion rate and industry trends. You can also consider factors such as your customer satisfaction levels and the launch of new features or products.
3. Forecast contraction revenue. To forecast contraction revenue, you need to estimate the percentage of existing customers who are likely to downgrade or cancel their subscriptions in the future. You can estimate this percentage by looking at your historical churn rate and industry trends. You can also consider factors such as customer support tickets and the competitive landscape.
4. Calculate your total ARR forecast. Once you have forecasted each of the ARR components, you can calculate your total ARR forecast by adding them all together.

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The average growth rate of SaaS revenues varies depending on the company's size, stage of development, and industry. However, according to the SaaS Metrics Report by Blissfully, the average growth rate of SaaS revenues in 2023 is estimated to be around 30%.

Here is a breakdown of the average growth rate of SaaS revenues by company size:

• Small businesses (<$1 million in ARR): 50%
• Medium-sized businesses ($1 million to $10 million in ARR): 35%
• Large businesses ($10 million+ in ARR): 25%

It is important to note that these are just averages. Some SaaS companies may grow much faster or slower than the average. For example, a startup SaaS company with a new and innovative product may grow at 100% or more per year. On the other hand, a mature SaaS company with a saturated market may grow at only 10% per year.

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