- A SaaS revenue forecast builds ARR month by month: last month's ARR, plus new customers, plus expansion, minus churn.
- In the example (£24k average contract, 1% of ARR lost and 0.5% added in upgrades each month), 5 new customers a month reaches £4.0m of ARR in three years; 10 reaches £7.9m and 20 reaches £15.9m.
- Churn adds up: after three years the example business has lost £1.4m of ARR, more than the £0.7m it gained from upgrades.
- Reaching £10m of ARR takes 2,000 customers at £5k a year, or 100 at £100k.
Most B2B SaaS revenue forecasts start from customers: how many you'll win, what they'll pay, how many you'll keep and how much they'll grow. This post builds a simple ARR forecast from those inputs and shows how sensitive it is to the number of new customers. The numbers are illustrative.
The building blocks
ARR this month = ARR last month + new customer ARR + expansion − churn. In the example, every new customer pays £24k a year (£2k a month), the company loses 1% of its ARR each month to cancellations and downgrades, and gains 0.5% a month from upgrades and price rises. That's roughly 94% net revenue retention a year: below the 101% median that Benchmarkit reported for 2024, so there's room to do better.
How many new customers?
The number of new customers each month is usually the biggest lever, and the forecast scales almost in proportion to it:
Where the ARR comes from
For the 10-customers-a-month case, after 36 months the company has added £8.64m from new customers and £0.71m from expansion, and lost £1.43m to churn, ending at £7.92m of ARR. Churn is a slow leak: small each month, large over three years.
How many customers to reach £10m of ARR
Contract size decides how many customers you need, and therefore how you sell: thousands of small customers need self-serve or low-cost sales, while a hundred large ones justify field sales teams.
From ARR to revenue
ARR is a run-rate, not the revenue in the accounts. Revenue for a year is roughly the average ARR across it, so a fast-growing company's revenue lags its year-end ARR. Billing terms decide cash, as our post on invoices, cash and revenue under IFRS 15 explains.
Make these charts with your own numbers
Build your forecast in a spreadsheet, then paste the months into the line chart race or the waterfall chart to show the board how ARR builds up.
Sources and method
An illustrative model: £24k a year per new customer, with churn of 1% and expansion of 0.5% of ARR each month, compounded monthly over 36 months. Not a forecast of any real company and not investment advice.