Forecasting The SaaS Top Line Funnel : It’s All About The Timing

The top line, refers to a company’s revenue, which is the execution of gross bookings that flows to billings and cash which are not referred to as top line nomenclature. However, the SaaS top line is comprised of a funnel: Bookings-Billings-Revenue-Cash, each are intertwined and each operate differently from one another from customer to customer. Forecasting top line components, requires a deep understanding of how your customer install base operate within each component, so you can better predict the patterns with accuracy and most importantly time the peaks and troughs of cash burn.

Let’s take a look at the timing impact of the top line funnel scenarios for a one customer who purchases a two-year contract in March for $12,000 annually.

As you can see from one customer contract, there are a variety of timing scenarios that impact each line item. Combining these permutations by your current and future customer install base, multiply the magnitude of risk in accurately timing cash burn. While it’s inefficient to model each customer contract attribute, it is imperative to properly record each customer contract line item into entries, to build a sophisticated model that summarizes the percentages of the top line funnel attributes among the customer install base. For example, you may find 80% of your customer install base are be billed quarterly and the remaining 20% billed monthly. Or, new customer payments are due on receipt, while 60% are due net 30 and the remaining 30% due net 90. Building these top line funnel attributes into your SaaS model will increase the timing accuracy in your forecasting.