saas-financial-model

SaaS Financial Model

Pre-Processing (Auto-Context)

Before starting, gather project context silently:

• Read PORTFOLIO.md if it exists in the project root or parent directories for product/team context
• Run: cat package.json 2>/dev/null || cat build.gradle.kts 2>/dev/null || cat Podfile 2>/dev/null to detect stack
• Run: git log --oneline -5 2>/dev/null for recent changes
• Run: ls src/ app/ lib/ functions/ 2>/dev/null to understand project structure
• Use this context to tailor all output to the actual project

Unit economics, revenue modeling, and financial projections for SaaS and subscription businesses. Make pricing decisions with math, not vibes.

Step 1: Classify the Financial Need

Need	Output
Unit economics	CAC, LTV, payback period, margins
Revenue model	MRR/ARR projections with assumptions
Pricing analysis	Tier comparison, willingness-to-pay, margin impact
Fundraising model	12-24 month projection, burn rate, runway
Break-even analysis	When does this product cover its costs?
Plan comparison	Free vs freemium vs paid — which model wins?

Step 2: Gather Context

1. Product — what SaaS/subscription product?
2. Pricing — current tiers, prices, billing (monthly/annual)?
3. Current metrics — users, paying customers, MRR (if exists)?
4. Acquisition — how do customers find you? Cost per channel?
5. Churn — current monthly churn rate (if known)?
6. Team cost — monthly burn (salaries, infra, services)?

Step 3: Core SaaS Metrics

MRR (Monthly Recurring Revenue):
  = sum of all active subscriptions per month
  Components: New MRR + Expansion MRR - Churned MRR - Contraction MRR

ARR (Annual Recurring Revenue):
  = MRR × 12

ARPU (Average Revenue Per User):
  = MRR / total paying customers

CAC (Customer Acquisition Cost):
  = total sales & marketing spend / new customers acquired
  Include: ads, content, sales salaries, tools

LTV (Lifetime Value):
  = ARPU / monthly churn rate
  Alternative: ARPU × average customer lifespan (months)

LTV:CAC Ratio:
  Target: > 3:1 (healthy)
  Warning: < 3:1 (spending too much to acquire)
  Danger:  < 1:1 (losing money on every customer)

Payback Period:
  = CAC / ARPU (in months)
  Target: < 12 months

Monthly Churn Rate:
  = customers lost this month / customers at start of month
  Target: < 5% for SMB, < 2% for mid-market, < 1% for enterprise

Net Revenue Retention (NRR):
  = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR
  Target: > 100% (expansion revenue exceeds churn)
  Best-in-class: > 120%

Step 4: Revenue Projection Model

Month-by-month model:

Starting Customers  = previous month ending customers
New Customers       = marketing leads × conversion rate
Churned Customers   = starting customers × churn rate
Ending Customers    = starting + new - churned

MRR                 = ending customers × ARPU
New MRR             = new customers × ARPU
Churned MRR         = churned customers × ARPU
Net New MRR         = new MRR - churned MRR

Costs:
  Infrastructure    = base + (per-user cost × customers)
  Team              = salaries + benefits + contractors
  Marketing         = new customers × CAC
  Tools/Services    = fixed monthly costs

Profit/Loss         = MRR - total costs
Cumulative P&L      = running total (shows path to profitability)

Step 5: Pricing Tier Analysis

Pricing framework:

| Tier | Monthly | Annual (discount) | Target Segment | Margin |
|------|---------|-------------------|----------------|--------|
| Free | $0 | - | Lead generation, product-led growth | Negative |
| Starter | $X | $X×10 (17% off) | Solo/small teams, price-sensitive | 60%+ |
| Pro | $Y | $Y×10 (17% off) | Growing teams, power users | 70%+ |
| Enterprise | Custom | Annual only | Large orgs, compliance needs | 80%+ |

Pricing rules:
  - 3 paid tiers maximum (paradox of choice)
  - 10x value gap between cheapest and most expensive
  - Annual discount: 15-20% (improves cash flow + retention)
  - Free tier: only if product-led growth model, with clear upgrade trigger
  - Enterprise: always custom/contact-us (higher deal size)

Value Metric Selection

The value metric is what you charge based on. It should:
  ✅ Scale with the customer's success (they pay more as they get more value)
  ✅ Be easy to understand (no complex formulas)
  ✅ Be predictable (customer can forecast their bill)

Common value metrics:
  - Per seat/user (Slack, Notion)
  - Per usage/volume (Stripe, Twilio)
  - Per feature tier (most SaaS)
  - Flat rate (Basecamp)

Best for small business clients: feature-based tiers with clear upgrade triggers

Step 6: Break-Even Analysis

Fixed costs (don't change with customers):
  Team salaries, office, tools, base infrastructure

Variable costs (scale with customers):
  Per-user infrastructure, support time, payment processing fees

Gross margin:
  = (Revenue - Variable Costs) / Revenue
  Target: > 70% for SaaS

Break-even point:
  = Fixed Costs / (ARPU - Variable Cost Per Customer)
  = number of customers needed to cover all costs

Example:
  Fixed costs:     $15,000/month (team + tools)
  ARPU:            $49/month
  Variable cost:   $5/customer/month (infra + Stripe fees)
  Break-even:      $15,000 / ($49 - $5) = 341 customers

Step 7: Runway Calculation

Cash runway (months):
  = Cash in bank / Monthly burn rate

Monthly burn rate:
  = Total monthly expenses - Total monthly revenue

Example:
  Cash: $200,000
  Monthly expenses: $25,000
  Monthly revenue: $8,000
  Burn rate: $17,000
  Runway: 11.8 months

Rules of thumb:
  - Raise when you have 6+ months runway remaining
  - Default alive: revenue growing fast enough to cover costs before cash runs out
  - Default dead: burn rate exceeds growth trajectory

Step 8: Financial Model Output

FINANCIAL MODEL — [PRODUCT NAME]
Date: [TODAY]
Projection Period: 12 months

ASSUMPTIONS
  Starting customers: X
  Monthly new customers: X (growing Y% month-over-month)
  Monthly churn rate: X%
  ARPU: $X
  CAC: $X
  Monthly fixed costs: $X
  Variable cost per customer: $X

UNIT ECONOMICS
  LTV: $X
  LTV:CAC: X:1
  Payback period: X months
  Gross margin: X%

12-MONTH PROJECTION
| Month | Customers | MRR | Costs | Net | Cumulative |
|-------|-----------|-----|-------|-----|------------|
| 1     | ...       | ... | ...   | ... | ...        |
| ...   |           |     |       |     |            |
| 12    | ...       | ... | ...   | ... | ...        |

BREAK-EVEN
  Customers needed: X
  Projected month: Month X

KEY RISKS
  - [Risk 1] — [Impact if realized]
  - [Risk 2] — [Impact if realized]

RECOMMENDATIONS
  - [Pricing/growth/cost recommendation]

Live Benchmarking

Use WebSearch to fetch current SaaS benchmarks:

• "SaaS median CAC by segment 2025"
• "SaaS net revenue retention benchmarks"
• "SaaS Rule of 40 benchmarks by stage"

Compare project metrics against benchmarks and flag outliers.

Artifact Generation (Required)

Generate using Write:

1. Financial model: docs/financial-model.md with all metrics, assumptions, and scenarios
2. Pricing analysis: docs/pricing-analysis.md — tier comparison with value metrics
3. Unit economics: docs/unit-economics.md — CAC, LTV, payback period with sensitivity analysis

Step 9: SaaS Benchmarks

For comparison against industry norms:

| Metric | Seed | Series A | Series B+ |
|--------|------|----------|-----------|
| MRR | $10-50K | $100-500K | $1M+ |
| Growth (MoM) | 15-20% | 10-15% | 5-10% |
| Churn (monthly) | 5-7% | 3-5% | 1-3% |
| LTV:CAC | 2-3x | 3-5x | 5x+ |
| Gross Margin | 60-70% | 70-80% | 80%+ |
| NRR | 90-100% | 100-110% | 110-130% |
| Payback (months) | 12-18 | 8-12 | 3-8 |