Technology & Innovation

SaaS forecasting: benefits of running monthly forecasts

Discover the benefits of SaaS forecasting and how monthly forecasts can enhance your business strategy. Explore more on our blog.

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As a SaaS CFO, you already understand the importance of forecasting to make informed decisions, boost risk management, and generate additional revenue for your organization. But have you considered the benefits of running monthly forecasts specifically? In this blog, we’ll explore the world of SaaS forecasting and why monthly forecasts are crucial for your company’s success. From improved cash flow management to enhanced business planning, running monthly forecasts offers numerous advantages that can take your SaaS business to the next level. 

We’ll also provide practical tips on the forecasting process. Don’t miss out on this opportunity to optimize your SaaS forecasting strategy and stay ahead of the competition.

What is SaaS Forecasting?

SaaS forecasting is among the largest factors in any software company’s bottom line. It involves analyzing historical data and market trends to predict future revenue and growth for a SaaS company. It helps with resource planning, target setting, and strategic decision-making in every domain. From internal functions like accounts payable and accounts receivable to campaign performance, it has important implications for every level of your organization’s finances.

Accurate forecasts help you and your finance team set realistic goals and revenue targets while allowing for better resource allocation. Regular forecasting with accounting software enables businesses to track their progress and adjust as needed. Additionally, forecasting provides essential information to your investors and stakeholders, helping them make optimal decisions.

Forecasting is the glue that binds financial planning and analysis (FP&A) together. None of the goals of FP&A–optimizing revenue, getting ahead of trends and financial threats, uncovering opportunities– would be possible without forecasting. It even helps businesses respond to coming changes in broader economic conditions.

Running monthly forecasts in the SaaS industry: a deeper look

The SaaS industry is known for its lightning-fast pace; a lot can change in four weeks. Monthly forecasts play a crucial role for CFOs at SaaS organizations. They provide valuable data on revenue growth, customer acquisition trends, and red flags like churn spikes and other threats. By tracking and forecasting the success of marketing and sales strategies, you can also supply vital insights to stakeholders in those departments.

Monthly forecasts enable you to measure your company’s performance against its benchmarks for SaaS metrics and revenue targets. Almost every company sets benchmarks–but monthly forecasting followed by prompt action helps you reach and maintain those goals. SaaS budgeting also benefits from monthly forecasting, allowing for better resource allocation and identification of challenges in advance.

Some of the most critical aspects of your company’s performance to forecast include:

  • Budgeting and resource allocations: Automated monthly forecasts allow finance teams and leaders to double-check that budgets will hold up as planned and resource allotments have been optimized for the company’s present needs.
  • SaaS metrics: Your SaaS metrics and KPIs are some of the most critical components of the forecasts you run in your department. From churn to ARR, MRR, CAC, and others, your metrics act as financial guideposts for your team, stakeholders, and investors.
  • Product performance: If your company frequently rolls out new products or new tweaks and upgrades, product performance forecasting is essential. Monthly performance forecasts make it easy to catch and fix problems while they’re still minuscule.
  • Pricing strategies: Whether you’re experimenting with a usage billing SaaS model, trying a freemium billing model, or something else, forecasting can help you get it right. Automated forecasts are crucial for properly implementing complex SaaS billing strategies with many moving pieces.

Why else is monthly forecasting a practice worth adopting?

Benefits of running monthly forecasts in your finance department

Some SaaS CFOs are skeptical of the need to forecast monthly–for many organizations, quarterly manual forecasts are the norm. The rest of this post will show you why both parts of that equation are suboptimal for software companies.

First, we’ll go deeper into the benefits of monthly forecasts, then we’ll cover the benefits of replacing manual accounting workflows with AI and machine learning (ML).

Improved cash flow management

Optimized cash flow management is crucial for maintaining financial stability, especially when the markets head south. Monthly forecasts are vital in helping businesses stay on top of their cash flow by providing a clearer picture of revenue and expenses. By analyzing revenue trends and patterns in your forecasts, you can keep a firm grip on any cash flow fluctuations and make informed decisions about investments, expenses, and resource allocation.

SaaS revenue data.

You’ll also be able to identify cash shortages or surpluses in advance so you can take proactive measures in either situation–quickly correcting the shortage or deciding how best to use your surplus capital.

Enhanced business and financial planning

Taking steps to enhance your business planning and FP&A capabilities is crucial for the success of your organization. An investment in improved planning through monthly forecasts yields financial transparency and accountability, benefiting all the stakeholders involved in your various projects and decisions.

Monthly forecasts are essential for ensuring that you plan correctly for today’s dynamic and competitive SaaS landscape.

Reduced financial risk

Running monthly forecasts helps businesses identify and mitigate financial risks before they become significant problems. By proactively adjusting strategies every month as needed, you can better minimize potential hazards to your SaaS business, such as:

  • Changes in user tastes and market trends
  • Financially risky customers
  • Operating on flawed assumptions
  • An incorrect understanding of how your deferred revenue impacts your cash position

Regular forecasting helps identify potential cash flow issues, allowing businesses to take timely corrective actions. Reducing your financial risks through monthly forecasts can pave the way to greater stability and profitability.

How can accounting automation enhance your SaaS monthly forecasting?

Implementing monthly automated forecasts in your department provides a more accurate and up-to-date view of your business’s performance. How do accounting teams using automated SaaS finance tools gain a leg up over competitors who still use manual forecasts?

Reduced forecast variance and no more manual back-and-forth for data gathering

When it comes to manual SaaS forecasting, all kinds of things can go wrong that result in intolerably high variance rates. The traditional approach of using email chains for forecast data gathering doesn’t hold much water compared to the speed and accuracy of cloud-based forecasts.

SaaS revenue forecast data.

Automation makes forecasting as simple as entering your starting data and clicking a button. Much better than hours of tedious manual assembly, wouldn’t you agree?

Advanced algorithmic forecast assembly and modeling

SaaS organizations gain a sizable advantage with increased flexibility in their forecast modeling. Accounting automation uses ML and algorithm-based modeling techniques to support a wide range of forecast strategies and techniques.

Additionally, cloud-based accounting solutions will automatically store all your model creation data, keeping you fully compliant with the regulations applicable to ML financial modeling.

A better understanding of your deferred revenue

Deferred revenue waterfalls have a huge impact on cash flow for SaaS companies. Staying on top of your deferred revenue is a pathway to profits, while a lack of detailed visibility into deferred revenue waterfalls can spell serious trouble. Without detailed visibility, you might think your cash position is stronger than it is and make decisions that will result in later shortages when your waterfalls weren’t what you expected.

Deferred revenue burn down data.

Deferred revenue is a huge part of practically all SaaS companies and something much better off automated.

More effective data collection to increase cash flow

Collecting and analyzing relevant data is the bread of butter of SaaS forecasting. Automation assists teams in both areas, streamlining the collection of important SaaS metrics, payment and billing data, usage trends, and other essentials for data-driven decision-making.

And best of all, it does all that in the background while you and your team are engaged in higher-value strategic FP&A.

Nail every hiring decision (on the finance team and in other departments)

Monthly automated forecasts are always a good idea for SaaS companies. But they’re essential if you’re hiring or planning on hiring soon. Automated forecasts help SaaS CFOs in every facet of the hiring process. From preventing overhiring to helping you gauge the hiring needs of various departments, these technologies can optimize how you hire.

All in all, automation is a game-changer for your SaaS forecasting. And when you diligently combine it with monthly forecasts, you’ll be on top of your cash inflows and outflows like never before.

Make a seamless leap to monthly SaaS forecasting

For SaaS CFOs and accounting leaders, there’s almost nothing more valuable than present and future financial visibility. The further into your company’s financial future you can see, the better you’ll be able to shape it according to your goals and objectives. Automated monthly forecasts are the single best way of doing that.

If you’d like to learn more about how you can effectively implement monthly forecasts in your department, check out our recent ebook for SaaS accounting leaders.