Forecasting and the Role of Churn in Software-as-a-Service Business Models

This article demonstrates a revenue forecasting model for Software-as-a-Service (SaaS) business models. Due to the highly predictable nature of subscriptions, a SaaS business can often project future revenue on the basis of a few key metrics. However, understanding and predicting the churn rate of the subscription base is critical to successful projec-tions. The authors explain SaaS churn and demonstrate the use of critical variables in a predictive SaaS revenue model. The model allows a business to project future revenues based on historical and expected customer subscription behavior. The methodology combines research with the experience of a senior executive in a SaaS-driven business to build the predictive platform