Effective financial planning is paramount for the success of any SaaS startup, yet a significant number of founders either lack a comprehensive strategy or implement flawed ones. Many operate without a real plan, rely on overly optimistic projections, or fail to connect their burn rate directly to their growth rate. This oversight can lead to critical missteps, especially in today's tighter venture capital market.
To navigate the complexities of startup finance and ensure sustainable growth, it's crucial to develop three distinct financial plans for the upcoming year. These plans, known as the C-60, C-10, and C-90, provide a robust framework for managing expectations, setting ambitious goals, and preparing for potential challenges. The 'C' in each plan stands for Confidence – the likelihood of achieving that particular scenario.
Why Three Plans Are Essential for Your SaaS Business
Without a strong, data-driven financial model, hitting your annual goals becomes significantly harder. Even minor misallocations of spending can compound over time, leading to an unsustainable burn rate. More importantly, a clear plan helps founders understand how far they can stretch their resources, guiding decisions on spending, hiring, and monthly objectives. In an environment where venture capital is less abundant, having these plans is not just beneficial, but essential.
Here's a breakdown of the three critical financial plans:
- C-60 Plan (Base Plan): This is your primary, most likely scenario, representing a 60% confidence rate of achievement. If your confidence is much higher, you might not be pushing hard enough; if much lower, it's too risky for a foundational plan. This serves as your operational blueprint.
- C-10 Plan (Stretch Plan): A more ambitious variant, the C-10 plan reflects a 10-20% chance of being hit. Typically, this means aiming for approximately 20% higher growth than your C-60 base plan. For example, if your base plan targets 100% growth, your C-10 might target 120%. This plan motivates teams and defines stretch goals.
- C-90 Plan (Worst-Case Plan): While not for public consumption, this plan is vital for internal strategic purposes. It models a scenario where expenses remain constant but revenue falls short (e.g., a 20% reduction from your C-60 revenue projection). The C-90 plan reveals how long your cash runway will last under adverse conditions, ensuring you're prepared for unexpected downturns.
Building Your Financial Plans: A Simple Approach
Creating these high-quality financial plans doesn't have to be overly complex. You can begin with a straightforward "Last 4 Months" (L4M) model, which can be built in minutes.
The L4M Model: Your C-60 Base Plan
The L4M model involves averaging your revenue growth rate, costs, and burn rate over the past four months and projecting these averages forward for the next year. This simple method provides a realistic C-60 base plan, reflecting your most probable trajectory. For instance, if your revenue has consistently grown by 5% monthly and your burn rate by 3%, these trends are extended. While you can tweak this base plan for significant upcoming deals or costs, the L4M model offers a solid, objective starting point that can be drafted quickly.
For more detailed guidance on building an L4M model, you can refer to this SaaStr article.
Need assistance? The new SaaStr Benchmarking tool can automatically generate an L4M plan for you. Simply upload a deck containing your trailing revenue and burn data, and the tool will calculate your plan. You can try it here.
Crafting Your C-10 Stretch Plan
Once your C-60 plan is finalized, you can develop your C-10 stretch plan. This typically involves increasing the revenue projections by about 20% from your C-60 plan, ensuring the target remains plausible yet challenging. Remember to account for any associated cost increases that would accompany this higher growth.
Developing Your C-90 Worst-Case Plan
The C-90 plan, though less enjoyable to create, is straightforward and critical. Take your C-60 plan's cost structure and apply a significant reduction to your revenue growth, perhaps by 20%. This exercise will reveal a higher burn rate (often 20-25% higher) and a much earlier "Zero Cash Date." It's imperative for founders and finance teams to openly discuss the implications of this plan, as ignoring it can lead to severe financial distress.
The 3 plans you need to make as a founder: The C10 Plan, The C60 Plan, and the C90 Plan.
Utilizing Your Three Financial Plans
With all three plans in place, you gain clarity on your burn rates and "Zero Cash Dates":
- The C-60 plan serves as your base for all operational goals and board discussions.
- The C-10 plan defines your stretch targets and can be linked to team bonuses.
- The C-90 plan is your critical tool for managing cash flow and understanding potential runway limitations.
If your C-90 plan reveals an insufficient cash runway (ideally, you want 16+ months), it's time to identify areas for cost reduction or consider raising additional capital.
To further validate your plans, SaaStr's new ARR Growth Planner can model out C-60, C-90, and C-10 scenarios for you. Explore it here.
Embrace Objective Planning
Do not shy away from your C-60 plan, even if its projections are not as optimistic as you might hope. It represents your most objective and accurate financial outlook, easily built in minutes. Allowing a different, less realistic base plan to be adopted by your finance or operations team can be a dangerous path, often leading to unforeseen challenges and financial distress.
For more insights on financial modeling, consider this article on the potential pitfalls of overly complex or biased models.
