SaaS forecasting is one of the most important functions of an accounting and finance department at any software organization.
SaaS CFOs are responsible for guiding their organization forward with reliable and actionable forecasts on everything from hiring decisions to pricing rollouts and much more.
As a finance leader, you should perpetually be on the lookout for ways to help your department enhance the effectiveness of its SaaS forecasting. In this post, we’ll go in-depth on the benefits of automated forecasting software. We’ll also discuss 5 different ways you can increase the profitability, accuracy, and simplicity of your forecasts and the forecast assembly process.
1: Get your data in order
Successful SaaS forecasting and data integrity are inseparable. If your data is mismanaged, out of date, or otherwise out of order, your forecasts will rapidly decline in quality. Automated forecasting software helps teams keep their data securely stored and organized in the cloud.
In a legacy accounting department, forecasts are manually assembled. This typically involves each department overseeing and updating its own data–a practice known as data siloing.
When the time to assemble a forecast arrives, employees across different departments manually cobble together forecast data in spreadsheets and send it as an email attachment.
This exposes companies to security risks as well as manual errors or forecast inaccuracies. Let’s briefly compare the legacy approach to forecasting with automated accounting software.
SSOT vs. data silos
SaaS forecasting software stores companies’ data much more effectively through a single source of truth (SSOT). An SSOT is a cloud-based data storage system that pools all your organization’s data in a centralized location.
Once it’s stored in an SSOT, your data will be available 24/7 to every employee who needs to access it. Automated accounting software will also sync all your data updates to eliminate discrepancies.
SSOT implementation is typically fast and fairly simple, and it paves the way to effective long-term forecasting.
2: Embrace AI and financial process automation
As a SaaS CFO, you’re probably well aware that forecasts are a layered matter. Forecasts rely on accurate and detailed financial reports, which are dependent on data collection and management capabilities.
Automated SaaS forecasting software helps finance teams streamline and simplify the entire process. Forecasts built with AI-enabled accounting software are also more accurate over longer timespans.
Let’s take a closer look at the differences between assembling manual forecasts and using automated forecasting software.
The perils of manual forecasting
Between information gathering, report assembly, forecast model creation and everything else, manual forecasting is anything but simple.
A few of the major risks of legacy manual forecasting are:
- Higher forecast variance.
- Mistakes resulting from human error or oversight.
- Getting bogged down in busy work at the expense of strategy.
- Failing to hit quarterly revenue and metric benchmarks–for these reasons and more.
How, specifically, can finance leaders use automated accounting software to bypass these risks?
AI-fueled SaaS forecasting: 3 use cases
AI and machine learning (ML) enable SaaS CFOs to make significantly more detailed and flexible financial projections.
Below are three potential use cases for automated forecasting software:
- 1. Segmented discount campaigns: Sometimes you want to offer a discount to certain audience segments or buyers meeting specific criteria. Automation makes that as simple as plugging in your starting points and generating a 1-click forecast.
- 2. Hybrid pricing flexibility: Hybrid pricing models are extremely popular among SaaS customers, but running manual forecasts on them can get very complex. AI seamlessly builds pricing flexibility into your SaaS forecasting.
- 3. Instant multi-currency forecasts: SaaS companies frequently do business overseas, whether it stems from organic customer growth or M&A activity. Automated forecasting can be a real help in those situations.
Automated accounting software also helps SaaS CFOs achieve greater clarity and confidence in their reporting.
3: Double down on reporting granularity
Since financial reports are the foundation of your SaaS forecasting, it’s essential to optimize that function of your department.
How can you most effectively lay the groundwork for actionable, reliable forecasts? It all starts with automating financial reporting.
Laying the groundwork
Accounting automation software streamlines your reporting workflow and results in several important ways.
Enhanced focus on metrics and KPIs
AI enables teams to report on a much wider range of SaaS metrics than legacy systems. This is a benefit on its own, but it also positively impacts your SaaS forecasting.
Asking the right questions
Even with automated accounting software in the mix, human employees are still responsible for the “why” and “how” of your company’s strategies. AI can help you forecast more effectively, but you still need human intuition to form that data into profitable ideas which you can then run forecasts on.
Once you’ve gotten your reporting squared away, what else is on your to-do list?
4: Revisit and revise your sales and marketing funnel
An organization’s sales and marketing funnel is a crucial part of its success. Your funnel–and all its various subcomponents, campaigns, etc.–is how you connect with the right buyers at the right time.
Taking a step back and going through your funnel with a fine-tooth comb is often beneficial for companies. Are there customer segments you’ve recently started serving who are under-represented in your current sales and marketing assets?
Alternatively, is your funnel currently skewed toward a customer segment that’s not yielding the profits you initially hoped for? Current results and the reports based on them form the basis of forecasts–but your sales and marketing funnel is a huge piece of that equation.
5: Remember to forecast new billing strategies
While some customers may prefer the simplicity of flat-rate pricing, it’s always a good idea to equip your department with accounting tools that support more complex billing if necessary.
The SaaS industry is known for its billing flexibility, and many customers will want a somewhat more flexible option. Forecasting software enables finance teams to easily run tests on different pricing strategies.
Opt for built-in flexibility
Automated accounting software offers significantly more billing and pricing flexibility than its legacy counterparts.
Automation turns testing different pricing approaches into a simple “plug and play” process.
Automated billing also eliminates the high risk of human error that comes with manually handling complicated billing scenarios.
Popular SaaS billing models
Some of the most popular SaaS billing models include:
- Freemium (or free trial)
- Pay as you go
- Feature tiers
- Usage billing
- Hybrid billing
Automated accounting software equips SaaS finance teams to handle these billing scenarios and many others.
Forecasting is just the beginning
There’s no disputing that forecasting is vital for finance teams. Both the SaaS industry itself and the expectations of customers are evolving–forecasting allows organizations to stay ahead of key trends by seeing financial outcomes in advance.
But for SaaS accounting leaders, forecasting is just the tip of the iceberg. If you are looking to uplevel your skills in FP&A and understand the best practices that will guide informed business decisions, join the Modern Saas Finance Academy, an online learning experience with curated courses for SaaS finance and accounting leaders. With lessons ranging from revenue management to FP&A leadership, this online academy is designed for the future of SaaS accounting.
Click here to join the academy today.
Modern SaaS Finance Academy
The Modern SaaS Finance Academy is a free online training hub designed for CFOs, Controllers, FP&A, Revenue managers, Revenue Operations, and other members of the finance community in fast growth SaaS companies.