How to Model SaaS Projections for Interviews

Hey WSO - this post is specifically for those of you in IB / Consulting who are interested in breaking into Software Buyout, Growth Buyout, Growth Equity, or Late Stage VC.


Now that I'm in the industry, I want to help you guys understand how to actually model out SaaS LBOs, based on Customer Cube data. There was so little information on this when I was recruiting and I had to piece together bits of wisdom from a wide range of posts to figure this out. It's a lot easier to wrap your head around when you can reference an actual example.


To pay it forward, I've put together a basic model that maps out Beg ARR, New Logo ARR, Upsell ARR, Downsell ARR, Churn ARR, and Ending ARR -- based on raw customer revenue data. You can see how this is all projected based on an assumed S&M spend, which is applied to an assumed CAC to get # of new Logos, which is multiplied against ACV to get your New Logo ARR in order to build out your ARR projection. From there, you can see how beg and ending ARR balances can be averaged out as a % of actual historical Revenue. After that - it's fairly standard % cost margins against revenue (except for S&M spend).


Note that this is just 1 basic way to model this out. However, this should be sufficient to land a software buyout associate role. You can use this as a start and build additional complexity in the model based on what you want to solve for (headcount planning, S&M driven by # Reps, New logos driven by Rep Attainment, etc). 


Comment below and I'll send you a link to the model in Google Sheets.


UPDATE: Due to high demand, I've removed the raw data and shared a simplified ARR -> Revenue Projection build in the link below. You can use this as the foundation to build your LBO model & add complexity. I should emphasize that you should understand the underlying assumptions for sales efficiency (Product Led Growth vs Enterprise Sales motion) - some thoughtful comments below I’d encourage yall to read through.


Link Here: https://docs.google.com/spreadsheets/d/1Q2dTXc0u7…

 

Interested but posting here for visibility: OP won't be able to send 35 DMs due to WSO limitations. Literally just post the link here.

 
Most Helpful

Out of an interest in giving back as well I might add some color since I am a software buyouts guy. When you look at something like S&M you should really think about what the cost is there. And for classic enterprise software (not PLG software) the cost is reps. And so another way to think about this is if you assume a certain path of rep productivity (ramp over 18 months) you can actually start with the number of reps you want to add (so part of S&M is a function of that) and then say OK we have capacity to bring on xyz amount of capital, what kind of return can we make on that given a certain rep productivity path. And then you also want to model out CAC, and say ok is this going to be the same, or is this a consumer internet business and CAC is going to quadruple in four years?

 

Having previously invested in and worked at a SaaS business as well as evaluated candidate case studies, happy to share some thoughts. The model shared is definitely very high level and correctly touches on the components that lead to revenue projections. However in terms of interviewing and possibly doing a case study/model test, there needs to be more concrete thoughts on how you're arriving to your ARR and revenue figures – a few examples would be whether the business is Enterprise or PLG driven (this would impact how you think about S&M in terms of seller productivity vs TOFU marketing spend and CAC), what SKUs/plans are offered and what does retention look like (which implies having a cohort waterfall built). 

 

Yes, for the purposes of this. If you have services revenue, then its just an attach rate on Software revenue to get Services revenue. If you need a more complex model, then you can do bookings revenue (software) that gets recognized over time and have your services/implementation fee alongside new bookings.

 

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