Revenue planning in SaaS: How to achieve better and more predictable growth

Effective revenue planning goes far beyond predicting just future numbers. It involves creating a strategic roadmap that aligns your revenue goals with business objectives, taking into account the unique dynamics of the SaaS business model.

This blog will walk you through everything you need to know about creating and executing effective revenue plans for your SaaS business.

What is revenue planning?

The best way to think of revenue planning is to imagine it as your financial GPS. However, when it comes to SaaS, unlike traditional businesses that might focus primarily on one-time sales, revenue planning needs to account for the unique dynamics of recurring revenue. 

This includes monthly and annual subscription revenue, variable revenue if you use a usage-based pricing model, and revenue from any combination of the two (often referred to as a hybrid pricing model). 

Revenue planning typically involves reviewing key finance and revenue-related metrics for emerging trends, as well as analyzing your existing revenue patterns. These metrics would include:

• Monthly recurring revenue (MRR)
• Annual recurring revenue (ARR)
• Customer churn rate
• Customer lifetime value (LTV)
• Average revenue per user (ARPU)
• Gross margin
• Others, based on your business and pricing model

Then, you’ll forecast future revenue by considering factors like market conditions and the competitive landscape, your product roadmap, your current sales pipeline, your pricing strategy, and any plans you might have for expansion. 

This exercise is particularly crucial for SaaS businesses because bookings don’t necessarily translate to immediate revenue. Since you’re likely investing heavily in customer acquisition upfront while collecting revenue over time, planning helps ensure you have the resources to support growth without running into cash flow problems.

Revenue planning helps you make informed decisions about hiring, product development, marketing spend, and infrastructure investments. It also allows you to spot potential challenges early, whether that's a rising churn rate or declining expansion revenue, so you can adjust your strategy accordingly.

Revenue planning vs. forecasting

Revenue forecasting is primarily a predictive exercise. It is all about looking at historical data, current trends, and market conditions to make educated predictions about future revenue. Revenue planning, on the other hand, is a more strategic and action-oriented process. 

The key difference between revenue forecasting and revenue planning is their purpose and approach. Forecasting tells you what might happen based on current patterns, whereas planning determines what you want to happen and how you’ll make it so.

For SaaS businesses, the distinction between planning and forecasting is particularly important. Your forecast might show steady growth in your current market, but your revenue plan might include strategies for entering new markets, launching new products, or changing your pricing model. The revenue plan encompasses all the actionable steps needed to potentially exceed what the forecast predicts.

Revenue planning vs. sales planning

For SaaS businesses, revenue planning involves optimizing all income streams across multiple departments—like product, marketing, customer success, and sales—to ensure sustainable growth. It takes a holistic view of not just new sales but also recurring revenue from existing customers, expansion revenue, usage-based fees, and even partner revenue shares (if applicable). 

Sales planning is essentially a subset of revenue planning, focused on new customer acquisition and the sales process. It involves setting specific targets for sales teams, designing optimal planning compensation structures, and determining the resources needed to close new deals. 

When do you need to create a revenue plan?

Revenue planning isn’t a once-and-done activity. The most successful SaaS companies think of revenue planning as a continuous cycle with varying levels of focus and frequency. 

• Annual planning: The comprehensive yearly exercise typically happens during Q4 for the upcoming fiscal year. Developing an annual plan is akin to drawing your company’s financial blueprint for the upcoming year. 
• Quarterly reviews: It is a good practice to revisit revenue plans quarterly to ensure they are still on track or make necessary adjustments—especially since the competitive landscape in SaaS is constantly evolving. 
• Monthly monitoring: While formal planning typically occurs on a monthly and annual basis, successful SaaS businesses monitor all key revenue metrics monthly. It is prudent to keep a keen eye on real-time indicators that could signal potential churn or expansion (impacting revenue), such as website traffic patterns, trial conversion rates, or usage metrics.

“What-if” scenario analysis also plays an important role during revenue planning, especially outside the “regular” planning cycles, to manage growth effectively. For example, it can really help to run a what-if analysis prior to a fundraising round, a new product launch, or geographic expansion, or during periods of market disruptions and economic downturns.

How to create an effective revenue plan

The best way to think of revenue planning is to imagine it as your financial GPS. It seeks to answer high-level questions, like “What do we need to do to grow our enterprise segment by 25% next quarter?” Then, by developing specific strategies around sales, marketing, product development, and customer success, you can more easily navigate the business to achieve the required results.

Here’s how you can develop a solid revenue plan that delivers on the ask:

Step 1: Review and set revenue goals

Your revenue goals should be specific, measurable, and time-bound. Start by aligning your revenue targets with the overall business objectives. Consider factors like market position, growth stage, and investor expectations.

During this stage, you also need to define the key metrics to monitor progress and make necessary adjustments to your plan. Focus on critical SaaS metrics like net revenue retention (NRR), customer acquisition cost (CAC) and LTV, along with any product usage metrics you use to measure success. 

Step 2: Identify all revenue streams

While existing customers account for the largest share of your revenue, it’s important to map out all your revenue streams, including new customer acquisition, renewals, upsells, and cross-sells. You also need to account for any variable revenue from usage-based pricing if applicable. For SaaS businesses, understanding the contribution of each channel helps prioritize investments and resources. 

You’ll also need to factor in any planned price increases and additional revenue from  product upgrades. Further, do remember to document and take into account any seasonality or unusual patterns in channel performance.

Step 3: Analyze performance and revenue drivers

It is important for companies to identify specific drivers for revenue growth, such as new feature launches, marketing campaigns, sales team expansion, and channel partner initiatives.

Examine metrics like conversion rates, sales cycle length, and CAC to get a historical perspective of revenue drivers. Combine this with a market analysis to understand external factors like technology trends, customer behavior, competitive moves, and market dynamics. These additional factors will help you more accurately gauge how each driver can contribute to your overall revenue goals and the resources required.

Step 4: Estimate operating expenses

To achieve your revenue targets, you’ll have to consider all the necessary resources and expenses, like hiring and training new sales team members, allocating marketing budgets, scaling the customer success team, and making infrastructure investments. You also need to account for ramp-up time. This helps ensure your revenue plan is financially viable.

Step 5: Develop a sales forecast

Developing a sales forecast is necessary to understand what you can achieve in terms of top line revenue, which will inform your revenue plan.

Develop your forecast using one or more sales forecasting methods based on your business model and data maturity. Common approaches include bottom-up forecasting, stage-weighted forecasting, pipeline-based forecasting, and funnel forecasting.

Step 6: Create a revenue forecast

In addition to the sales forecast to predict revenue from new customers, you need a revenue forecast to account for recurring revenue from existing customers. 

There are different revenue forecasting models you could choose based on the maturity of your business, whether you’re in the pre-revenue stage, the early revenue or growth stages, or if your company is more mature. You could also use driver-based revenue forecasting, which considers the potential impacts of all the factors that drive revenue.  

Regardless of the revenue forecasting method you choose, it’s important to account for potential risks and include contingency plans. And to do that, you need to run various  “what-if” scenarios, which help you look at the potential impacts of different risks, such as changes in the competitive landscape or economic downturns, and develop a plan for responding effectively. 

Note that a what-if analysis can also be used to develop plans for responding to any new opportunities that you might anticipate. In either case, the goal in this step is to create a revenue forecast that is as accurate as possible so you can develop a solid revenue plan.   

Step 7: Integrate cross-functional insights

It is essential to include inputs from all teams that impact revenue. 

Sales will provide pipeline insights and market feedback, marketing will share demand generation capabilities, product teams will outline feature launches that could drive expansion revenue, and customer success teams can help you understand how much revenue you might expect in terms of retention and upsells. 

Getting diverse perspectives helps create a more realistic and achievable plan.

Step 8: Develop an action plan

To ensure your revenue plan is successful, it is advisable to break it down into manageable periods with clear milestones. 

• Set monthly targets, quarterly goals, and annual objectives that align with your long-term growth trajectory. 
• Create specific plans for implementation and next steps, such as resource allocation for sales team hiring, marketing budget allocation, product development, and customer success team scaling. 
• Include key dates for important product launches and market expansion initiatives to keep everyone aligned. 

You can also include risk mitigation strategies. 

Step 9: Monitor and adjust

Finally, it is essential to establish regular review cycles to track progress and make the necessary adjustments based on performance or market trends. As a best practice, consider utilizing revenue analysis and reporting dashboards. If using revenue planning software, you can also set up automated alerts to manage significant deviations from the actual revenue plan. 

Common challenges in revenue planning 

• Inaccurate data: Many SaaS companies struggle with inconsistent tracking of metrics, gaps in customer usage data, or incomplete sales pipeline information. This makes it difficult to establish reliable baselines and trends for planning purposes.
• Over-reliance on historical data: While historical data is valuable, overemphasizing past performance can blind you to market changes and new opportunities. This is especially true for fast-growing SaaS companies where past patterns might not reflect current market dynamics.
• Lack of collaboration between departments: Revenue planning requires input from multiple teams, but getting these teams to share information can be challenging. Often, different departments work in silos and have their own methods to document and analyze data—resulting in skewed projections and insights. Sales might have different projections than customer success, while product teams might have another view of the potential revenue impact of new features.
• Accounting for customer churn or preferences: Predicting and planning for churn is particularly challenging in SaaS as customer behavior patterns change, and there is always competitive pressure and fluctuations in economic conditions. Further, SaaS customers’ needs and preferences are constantly evolving. Features that were once revenue drivers become commoditized, while new requirements emerge.
• Figuring out new revenue streams: Whether it’s new product features, market segments, or pricing models, planning revenue from untested sources requires many assumptions and carries higher risk.
• Unrealistic sales projections: Sales teams often tend towards optimistic projections, especially regarding new logo acquisition or deal close rates. Balancing ambitious targets with realistic achievement potential is a constant tightrope to walk in revenue planning.
• Resource constraints: Whether it’s sales headcount, marketing budget, or product development capacity, companies have to find a way to plan revenue targets within their resource constraints while still meeting growth expectations.
• Unpredictable market conditions: External factors like economic changes, competitor actions, regulatory shifts, or other risks can significantly impact revenue plans. Building flexibility into plans while maintaining clear direction is a delicate balancing act. 

Tips and best practices for developing an accurate revenue plan for your SaaS business

• Ensure the plan reflects business objectives: Your revenue plan directly supports your company's strategic goals. So, if your business objective is market expansion, your revenue plan should emphasize new customer acquisition. Or, if the focus is profitability, your plan might prioritize expanding existing customer relationships and improving operational efficiency.
• Look at the revenue plan from various angles: Use multiple methods to validate your revenue projections. Compare bottom-up forecasts (based on sales capacity and pipeline) with top-down forecasts (based on market size and penetration) and also look at historical growth patterns and industry benchmarks. Doing this will give you more confidence and will also help in downstream activities like hiring. 
• Leverage historical data and market trends: Base your planning on actual performance data whenever possible. You can analyze patterns in conversion rates, sales cycles, churn, and expansion revenue. When you combine this internal data with market research (industry trends, competitive dynamics, and potential market shifts), you will get a more realistic revenue plan. 
• Break down revenue components: Segment your revenue plan by different components like new business, renewals, upsells, and usage-based revenue. This granular view will provide you with the knowledge required to identify and pull different levers to achieve your goals. 
• Plan resources and dependencies: Map out resources, such as headcount for different departments, department budgets, and your product development roadmap. Also make sure to identify any dependencies between different initiatives so you can create plans for addressing potential bottlenecks. 
• Account for time lags: Nothing ever happens in a jiffy. New sales hires typically take months to reach full productivity. Marketing campaigns may take quarters to impact the pipeline. Product features need time to influence customer behavior. It is always smart to accept this reality and build these time lags into your planning process.
• Document everything: Maintain detailed documentation of your planning process, assumptions, and decisions. This creates institutional knowledge and helps refine future planning cycles. 

Are you ready to build an effective revenue plan for your business? 

While historical data and market analysis provide the foundation, successful revenue planning demands accurate forecasting, cross-functional collaboration, and the ability to adapt to changing conditions. 

The key is to create plans that are both ambitious and achievable while maintaining the flexibility to adjust as circumstances change.

Given all the different factors you need to consider when developing a revenue plan and their combined complexity, using spreadsheets to pull it all together promises to be an enormous job. And, the more complex the planning process, the more error can creep into your plan, undermining its accuracy and any benefits it might otherwise have had for your business.   

If you’re ready to start building an effective revenue plan for your business, you’re ready to step up to a comprehensive financial planning and analysis (FP&A) software.  And with a robust set of financial planning and forecasting capabilities, Drivetrain is one of the best. 

Drivetrain’s financial modeling capabilities allow teams to create and test multiple “what-if” scenarios, making it easier to develop realistic revenue plans. 

It also significantly streamlines planning with more than 200 integrations to automatically consolidate the data you need for planning into one place—a single source of truth where teams can collaborate effectively, track performance metrics in real time, and make data-driven decisions. 

Learn more about Drivetrain and how it can help you build more accurate revenue plans for more sustainable growth in your business.