The B2B SaaS sales forecasting process can feel like an exercise of gazing into a foggy crystal ball: Sales teams make their best guesstimates on how many sales they’ll bring in in an upcoming period and hope their predictions land somewhere near the eventual figures.
For many businesses, however, their forecasts, unfortunately, end up being a flop. According to a 2021 State of Sales Forecasting study by revenue intelligence platform InsightSquared, 68% of B2B enterprise organizations surveyed missed their forecast by 11% or more.
“The truth is that sales forecasting with perfect accuracy is impossible,” writes Neil Ryland, reflecting on his previous SaaS employer’s missing of its sales target by a disastrous 40%.
“But as hard as predicting the future may be, it’s possible to make accurate forecasts using data and a disciplined process.”
Such data can come from incorporating unexpected tools into your sales forecasting method—like the humble billing automation system, for instance, which is more than just a mere tool for collecting payments. Let’s take a look at how a billing automation system contributes valuable data and insights for producing a more accurate sales forecast.
1. Spot MRR growth trends and anticipate incoming revenue
If there’s one report SaaS leaders check religiously, it’s the monthly recurring revenue (MRR) report. After all, watching your MRR go up can give you the heady rush of adrenaline you need to stay motivated. On the other hand, spotting a gradual slip in MRR figures is a sign that something needs fixing.
Regardless of whether your MRR is trending upward or downward, however, such insights are vital for accurate forecasting.
Using your billing automation system’s built-in MRR reports, you can:
- calculate the growth rate of your SaaS business: how much more (or less) MRR did your business earn at the end of a certain period compared to the start of it?
- set realistic sales targets for the next quarter, year, and so on, based on such growth trends.
Your billing automation system may also offer calendar reports that can help you understand how much you can expect to receive from existing customers in any future time period.
For example, you might learn you’ll be invoicing three customers for a total of $500 on the coming Monday, and 50 customers for a total of $15,000 for the month of March.
After factoring in the possibility of plan cancellations and failed payments (more on this later), your calendar reports can give you a pretty good picture of your incoming revenue and cash flow—adding greater certainty to your forecasts of future revenue.
2. Generate accurate invoices for accurate revenue classification
Being able to generate comprehensive billing reports isn’t sufficient on its own—your reports need to be accurate, too. As part of that, you’ll need to be able to send invoices that accurately reflect:
- what your customers have purchased from you, be these recurring subscription plans, one-time services, or something else,
- how much they’re paying for these purchases, and
- changes to their existing plans, whether these are upgrades or downgrades.
However, if you’re working with a legacy system, or another type of software not meant for modern recurring billing, then it might contain an inflexible product catalog that makes it difficult to bill customers accurately.
As an example, a customer may have purchased a one-off professional service from you. But if your billing automation system’s product catalog can’t accommodate one-time charges, you might need to:
- add a fake new ‘subscription’ for the amount of the service charge to your customer’s invoice, then
- cancel this fake subscription after your customer has paid for it once.
This creative workaround helps you collect what you’re owed, but at the expense of SaaS revenue forecasting accuracy.
Because in this scenario, your addition of a new subscription suggests that you’ve earned extra recurring revenue (instead of a one-time fee), while its cancellation a month later artificially inflates your churn rate. All this messes up the MRR and churn reports on which you rely for sales forecasts.
3. Leverage historical data to prepare for the future
Advanced billing automation systems keep track of financial transactions with ease. Whether these transactions are successful payments, failed payments, or refunds, billing automation systems will capture every single one. And with such sales data being saved automatically, your team doesn’t have to manually record transactions as and when they occur.
With this always accurate, always up-to-date record of your business’s transactions at your disposal, you’ve gained a new tool for identifying trends that could impact future sales figures. For example, you may discover:
- more customers have been seeking refunds over the last six weeks after you completed a major overhaul of your product. This could suggest customers aren’t satisfied with your revamped product and that you’ll need to revise your sales forecast downward while you take remedial measures, or
- you’ve encountered fewer failed payments over the last quarter after activating your billing automation system’s credit card auto-updating feature. If so, this is a happy sign that the feature is helping to keep customers’ credit card details up to date, and you should leave it enabled. Meanwhile, you can also raise your sales forecast.
Modern billing automation systems can also group customers by cohort, letting you segment your customers based on activation month, user behavior, deal size, or some other category. Leverage this advanced feature for pinpointing trends among customers with certain shared characteristics.
4. Factor late and failed payments into your sales forecasts
Remember what I said in point #1 about calendar reports helping you track incoming revenue from existing customers?
Well, for one reason or another, some customers may pay their invoices late—or not pay at all. You’ll need to factor such payment delays and failures into your sales forecasts, too. Otherwise, you might end up tainting your forecasts with overestimated revenue projections.
When a modern billing automation system detects that a customer has missed a payment deadline, it can:
- send a series of automatic dunning emails to notify the customer of the non-payment and encourage it to rectify the issue, and/or
- trigger your software product via API to disable that customer’s account if payment has been overdue for a certain period.
If the billing automation system manages to rescue the late payment, then great! You can safely retain that payment amount in your anticipated revenue figures.
But if payment isn’t forthcoming and you eventually need to write it off, then at least you’ll know this is the case and can adjust your SaaS revenue forecast downward.
Boost your SaaS sales forecasting accuracy with billing automation
“Sales forecasting is not an exact science. It never has been and it never will be,” subscription analytics platform ChartMogul writes on Hacker Noon. “But that doesn’t mean you shouldn’t put more rigor into it to create a model that is in line with your go-to-market motion.”
While there are many things that can be done to improve the accuracy of SaaS sales forecasting, an investment in a billing automation system is one that may not immediately come to mind.
As we’ve seen in this article, however, comprehensive billing automation systems pack in features that bring clarity to not only your anticipated annual recurring revenue (ARR), but also the impact of past transactions on your business’s future sales performance.
Have your sales team and sales managers dig into these data points as they seek to understand your SaaS business’s current position, then chart the path forward.