How to Create Realistic Assumptions For Your B2B SaaS Company’s Financial Projections By Using Comparables

Create-Financial-Projections-for-SaaS.jpg’s logo used to look like the Ghostbuster logo. Except instead of having a ghost behind the red crossed out circle, it was just the word “software.” It was cheesy but when started out, software as a service was pretty new. People just didn’t trust “the cloud.” Now it is a completely different story and many companies are quick to adopt a cloud solution versus an on premise one. I bring up because they are one of the first big B2B SaaS companies and they have the best annual reports. By best I mean with a ton of useful data. They were founded in 1999, and provide financials starting from 2001. That means as of today you have 17 years of financials and a lot of information regarding their business since they went public in 2004.

For that reason, if you are building a B2B SaaS company you have to read’s annual reports. Read them in depth to learn from their successes.

In this post I use as an example on how to use comparables to make assumptions for your B2B SaaS company’s financial projections.

Creating projections does not need to be a frustrating exercise in trying to guess the future. said “No Software,” and I say “No Guessing” when it comes to your financial projections. By using comparables in your mix of sources for assumptions, you can create projections that are realistic and enable you to make informed spending decisions that make your cash last longer.

The best way to go about creating your company’s financial projections is to use a combination of historical financials, comparable companies’ data and talking to your customers. If you are just starting out and have little to no historical data, i.e. less than 2 years, comparables will be even more important to build out your projections.

What are comparables? Comparables are companies that have a similar or the same type of business as your company. You analyze everything you can about how these companies: financials, number of customers, customer acquisition channels, etc.

Why you should use comparables in your SaaS company’s financial projections? The theory is that similar businesses will perform similarly. And I support this theory because I have seen it work. So for example, reached $5 million in revenue in its third year. If you have a similar type of business (customers, price point and market size) it wouldn’t be totally unreasonable that your business could get to $5 million in revenue in three years.

Does this mean that your company is guaranteed to make $5 million in revenue after three years? No. It just helps you to see what is possible and benchmark your projections.  If you are projecting $20 million in three years, you need to take a closer look at the milestones you are planning to hit and evaluate honestly whether you think you can hit them. There is no sense in trying to reach a goal that is likely unattainable.

By analyzing comparables you are able to see the range of possible positive outcomes if your business is successful. Remember, you are comparing your company to public companies who have had some amount of success. Not every business will be as successful.

How can you use comparables for your SaaS company’s financial projections?

1. Choose 3 to 5 public companies that are similar to your SaaS business.

Here you can download my spreadsheet with’s Profit & Loss statements and analysis and use it as a template. Download this and start there.  

Next, research other companies that are public and in your industry. Here is a list of some public SaaS companies.

Download all of the annual reports for the companies you choose.

2. Gather data from the comparable companies’ annual reports.

Use the spreadsheet as a template and gather the following data and enter it into a spreadsheet using one tab per company.

  • Revenue streams - subscription revenue and professional services revenue will be the two typical types you see. Subscription is the recurring revenue that makes a SaaS business so sexy. And professional services revenue usually consists of some type of consulting services for setup and or support of the product.
  • Cost of Goods/Revenue/Sales - these are the main ways that Cost of Goods Sold for a SaaS business are called. Essentially these are the direct expenses the company spends to provide the service. If your company has not yet defined Cost of Goods Sold, do your best to reasonably allocate those expenses that you think go there. [PRO TIP:  it’s better to have expenses categorized as operating expenses rather than in COGS (known as above and below the line) but don’t try to pad operating expenses, try to be lean to keep your cost of goods low.]
  • Research and Development expenses - for a SaaS company this will consist mostly of software development expenses. Read the explanation in the annual reports to see what this consists of for each company. Note that there is some accounting knowledge necessary here because not 100% of all of the technology teams’ salaries and expenses can go in here. It consists of really only the portion going towards developing the product, not maintenance or other activities. But for the sake of simplicity don’t spend too much time on this if your business is not mature yet.
  • Sales and Marketing expenses - these are expenses spent on sales and marketing to acquire and maintain customers. Sales and marketing expenses are important because for SaaS businesses you want to analyze your Customer Acquisition Costs (CAC). Although you won’t get much insight into to CAC from an annual report it is good to keep an eye on that.
  • General and Administrative expenses - for lack of a better definition these are almost all other expenses that are not R&D or Sales and marketing.

3. Analyze the data from the comparables companies.

Looking at the example, we can see the following. Use these as a guide to analyze each company and make assumptions for your own business’ growth.

Revenue growth

  • Year over year total revenue increased in the triple digits for the first four years and had $5 million in revenue in year three.  

Assumption: It is possible to get to more than $5 million in revenue in three years. I say more than $5 million because that was 15 years ago.

  • makes 90%+ of their revenue from subscriptions and very little from professional services. And you can see in the analysis of Cost of Revenue as % of Revenue that the Professional Services revenue is not profitable for them.

Assumption: Professional Services is a must have but is also not profitable. It is ok if you are unable to make your professional services profitable and would be a red flag to investors if you showed a significantly better gross margin.

  • Take note that over the last 10 or so years’s total gross margin floats between 75% and 80%.

Assumption: 75% to 80% is likely your optimal gross margin when your business is stable.

  • Research and Development expenses decrease as a percentage of revenue significantly over time. This is typical for SaaS businesses: you invest a lot in the beginning to build the product and then focus more maintenance and updates.

Assumption: You will spend significantly more on development of your software in the beginning.

  • It is important to spend on Sales and Marketing in the beginning. In their third year spent almost 5X their revenue on sales and marketing.

Assumption: You will probably need to invest significantly in sales and marketing in the beginning to penetrate the market. Here, however, we could theorize that because was an early cloud company they needed to teach the market about the benefits of the cloud, which costs more.

  • General and Administrative expenses scale easier; they are not a 1:1 with revenue. For example initially you may have two to three C-level executives when starting out and $1 million in revenue. That doesn’t mean that you will need 2 C-level executives for every $1 million in revenue. Typically as revenue grows, you will either pay your current C-level execs more or higher more expensive C-level executives.

Assumption: General and administrative expenses will decrease over time as a percent of revenue.

  • Net Profit from a SaaS business may not be as much as you are expecting. Over the years has made very little profit as a percent of revenue over the years, last year only achieving a 2% profit as a percent of revenue.

Assumption: Total operating expenses will be significant. If you have net profit higher than 10% of revenue as a an indicator to go back and review your expenses.

  • Take note of the number of employees needs to support revenue. They reached $176 million in revenue with 767 employees. Loosely that means that they were earning $230 thousand in revenue per employee.  

Assumption: Initially your business will likely earn significantly less per employee, but after a year it is reasonable to expect that your business will be able to get to this type of revenue per employee. Make sure you have enough employees to support your revenue.

I hope this analysis of has helped you to start creating projections based on the assumptions that we can pull out from looking at their business over time.

Download B2B SaaS Financial Model Assumptions Excel Template here.

For more insight or help on building your B2B SaaS business’ projections contact me at me (at)