{"id":16275,"date":"2023-03-07T15:20:00","date_gmt":"2023-03-07T20:20:00","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=16275"},"modified":"2024-08-20T00:59:58","modified_gmt":"2024-08-20T04:59:58","slug":"intacct-5-saas-billing-and-revenue-forecasting-models-for-the-recession","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/intacct-5-saas-billing-and-revenue-forecasting-models-for-the-recession\/","title":{"rendered":"5 SaaS billing and revenue forecasting models for the recession"},"content":{"rendered":"
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\n\t\t\t\t\t\t5 SaaS billing and revenue forecasting models for the recession\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\n\t\t\t\t\"David\t\t\t\tDavid Appel<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

Given the inherently unpredictable nature of recurring revenue forecasting models, customer churn, and growth, a SaaS company can be an especially tricky place to navigate a recession. Fortunately, with the right finance tools and practices, your SaaS business will have a much stronger chance of surviving and thriving during tough economic periods. <\/p>\n\n\n\n

As you scale from early to growth stage, finance automation that seamlessly integrates across your company is a must. But what is revenue forecasting and why is it important? Where do things generally go wrong in calculating revenue recognition? And how do you choose from a mix of revenue forecasting models? In this article, we\u2019ll explore these questions in detail, discuss some common mistakes to avoid, and look at how successful SaaS leaders are navigating the market downturn with consistent, automated and accurate revenue forecasts.<\/p>\n\n\n\n

What is revenue forecast?<\/h2>\n\n\n\n

A revenue forecast is what business leaders might call a \u201cfinancial crystal ball,\u201d which they can gaze into whenever they need help with strategic decision-making. It\u2019s a vital pathway to helping company leaders to secure long-term profitability and understand their cash position. <\/p>\n\n\n\n

Some SaaS leaders fall into the trap of believing that financial reporting is purely about rehashing numbers. Nothing could be further from the truth; a revenue forecast involves much more than just playing with numbers. Those numbers serve as the scaffolding on which you lay the groundwork to construct accurate revenue forecasts. <\/p>\n\n\n\n

If the inputs for your revenue forecasts are inaccurate or incomplete, your entire company will pay the price. If you\u2019re not targeting the right audience, your logo churn<\/a> rate will start to increase and your ARR<\/a> and MRR<\/a> will start to decline. <\/p>\n\n\n\n

That\u2019s a pretty gloomy picture. So, how do you prevent it from turning into a reality? Short answer: with accurate revenue forecasts. <\/p>\n\n\n\n

Accurate forecasts give your SaaS company a strategic edge. The further out in time that business leaders can reliably forecast, the clearer the picture they will have of expected revenue streams in the future. <\/p>\n\n\n\n

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Why is revenue forecasting important?<\/h2>\n\n\n\n

One of the most important aspects of revenue forecasting is that it allows you to get a panoramic view of your future finances. Revenue forecasts help you understand your cash position. This is highly beneficial because knowing your future financial prospects and understanding your current cash position impacts your team\u2019s behavior and risk appetite in the present. <\/p>\n\n\n\n

Change happens fast – embrace automated forecasting<\/h3>\n\n\n\n

Outdated forecasts are like an old map; so much has changed over the years that you just can\u2019t be confident, and you\u2019re likely to end up at a dead-end. When you\u2019re driving through the chaotic traffic of today\u2019s world, you need a reliable navigation system to help keep you on the right track. That\u2019s what automated forecasting<\/a> does for your SaaS business. <\/p>\n\n\n\n

Market dynamics can change quickly, so you need every advantage you can get to guide your company to enhanced profitability quarter after quarter. Automated forecasting is an essential variable in that equation.<\/p>\n\n\n\n

Strive for accurate, timely, and profitable forecasts<\/h3>\n\n\n\n

The most effective SaaS CFOs realize that automation is the only way to guarantee accurate, actionable, and reliable forecasts<\/a>. With modern automated revenue forecasting tools, you can immediately see more accurate revenue forecasts that reflect deferred revenue and predicted renewals. This visibility improves your ability to manage sales resources and to optimize future revenue. <\/p>\n\n\n\n

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For instance, imagine that your SaaS business has been planning a marketing campaign that offers a subscription discount, with a goal to reduce logo churn numbers. To accomplish this without negatively impacting your finances, you need to know how much of a discount you can offer and for what time range.<\/p>\n\n\n\n

If you have multiple pricing tiers and plan on offering discounts for each one, the odds that you\u2019ll make a costly miscalculation only increases. For this reason, it\u2019s important to get detailed about deferred revenue<\/a>. <\/p>\n\n\n\n

The do’s and don’ts of revenue forecasting<\/h2>\n\n\n\n

Using spreadsheets to track and forecast deferred revenue and renewals for complex software or services will create more problems than it solves. Here are three of the biggest issues with manual forecasting techniques:<\/p>\n\n\n\n

1. Reduced staff productivity.<\/strong> <\/p>\n\n\n\n

Spreadsheets that manage revenue and deferred revenue are inherently complex and difficult to maintain. These manual processes increase the chance of errors and delay period-end closings. <\/p>\n\n\n\n

2. Complicated audits and increased risk of restatements. <\/strong><\/p>\n\n\n\n

Preparing complex revenue and deferred revenue spreadsheets for period-end auditing takes time. And, of course, like any manual process, this can increase errors, which means higher audit costs and a greater risk of restatements.<\/p>\n\n\n\n

3. Decreased visibility into revenue, deferred revenue, and renewal.<\/strong> <\/p>\n\n\n\n

Instead of one consolidated view of a company\u2019s financial outlook, spreadsheets force finance professionals to refer to several different sources to obtain a complete view of revenue.<\/p>\n\n\n\n

How to forecast deferred revenue<\/h3>\n\n\n\n

Adopting a modern approach to finance and accounting can upgrade your forecasting capabilities immensely. Deferred revenue waterfalls play a huge role for many subscription-based businesses. If they aren\u2019t handled cautiously, they can significantly complicate your financial reporting and give you a false sense of your cash position. Cloud-based SaaS accounting software<\/a> makes forecasting deferred revenue a breeze. <\/p>\n\n\n\n

Effective, long-term revenue forecasting is indispensable for any degree of strategizing around price points. Automation can give you crystal clarity about how to maximize the profitability and attractiveness of your product or services \u2013 and show you how different price points will affect your overall finances. <\/p>\n\n\n\n

That\u2019s only the beginning of how a streamlined approach to revenue forecasting can benefit your entire company. Let\u2019s take a closer look at moving away from instantly obsolete forecasting techniques to instantly actionable forecasts.<\/p>\n\n\n\n

How to move your revenue forecasts from instantly obsolete to instantly actionable<\/h3>\n\n\n\n

Are you still manually gathering information from different systems across your organization and managing complex formulas in Excel to track revenue, deferred revenue, and ARR? Today\u2019s business leaders expect instant answers, ideally with a monthly rolling forecast cadence. You won\u2019t get there driving \u201cinstantly obsolete\u201d spreadsheets and emails. <\/p>\n\n\n\n

An automated billing system<\/a> is the new way to travel. Modern billing and SaaS subscription management solutions <\/a>eliminate your your reliance on slow, manual spreadsheets and replace them with a real-time engine of financial truth for \u201cinstantly actionable\u201d and accurate monthly forecasting<\/a>. Automation reduces the effort of manual, repetitive tasks that need to be performed frequently; and, as a result, reduces the risk of human error, which invariably helps to increase productivity and efficiency.\u00a0<\/p>\n\n\n\n

5 types of revenue forecasting models<\/h2>\n\n\n\n

If your company still relies on manual revenue forecasting models, there\u2019s no better time than right now to correct that mistake. Building a revenue forecast always runs more smoothly when you automate the process<\/a> \u2013 and in a recession, that matters hugely. <\/p>\n\n\n\n

There are tried-and-true methods to forecast revenue up to 80% faster<\/a>. Let\u2019s take a gander at five of the most effective billing and revenue forecasting models for subscription-based businesses.<\/p>\n\n\n\n

Multivariable analysis forecasting<\/h3>\n\n\n\n

Strategically, multivariable analysis forecasting is one of the most accurate models. This is because it accounts for multiple important pieces of sales data, such as: <\/p>\n\n\n\n