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  • Writer's pictureWade Myers

Reasonable Earnings for a SaaS Business Plan

Q: I'm having issues with my SaaS business plan financial model with my Net Income coming in too high. Where do I check within my inputs to adjust this number in my financial statements? I'm also having an issue with EBDITA being too high as well.

We’d suggest checking on the following inputs:

  • Offering Assumptions - Offering Cost: You may want to include direct expenses for Account Mgmt/Support as many SaaS applications require customer support.

  • Other Direct Expenses: You might also want to look at your inputs and make sure your hosting charges are ramping up sufficiently over the life of your plan. Your hosting could easily reach $25k - $50k/month on a SaaS application with a heavy footprint in the out years as you add thousands of customers.

  • Offering Assumptions - Customer Acquisition Cost: You may want to review your input for your cost of acquiring each customer. SaaS applications often have very high acquisition expenses that drag you into losses for the first several years.

  • Staff – R&D Staff: Most SaaS apps require a lot of ongoing tweaking and development, so look at your R&D staffing. You will likely end up spending a few million a year or more on ongoing development as your development roadmap stretches indefinitely into the future as you continue to add functionality to stay abreast of the market requirements and competitive pressures.

  • Staff – Sales and Marketing Staff: You will likely have a sizeable staffing expense with your marketing team and alliance managers to fully field your SaaS application, especially if it is a B2B app.

  • Other Overhead Expenses – Advertising and Marketing: You will also likely have a lot of marketing spend for a SaaS app on external advertising and marketing expense to raise awareness for your app.

In general, we’d recommend that you manage expenses in your out years, such as Year 4 and 5, so that your EBITDA is at 35% or below. See our post Avoid These Six Novice Mistakes When Pitching Venture Capital Investors in our Startup Tips blog regarding one of the common mistakes entrepreneurs make when they pitch a business plan with outlandish earnings levels. 

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