Revenue build and cohorts

A sales-led SaaS model does not start with a revenue cell. It starts with a funnel, a price and a book of existing customers that shrinks and grows.

Leads → SQLs → Opportunities → Closed-won customers
New ARR = new customers × ARPA

Then evolve the book with cohorts:

Ending ARR =
  Starting ARR
  + New ARR
  + Expansion ARR
  − Contraction ARR
  − Churned ARR

Model expansion and churn as rates on beginning ARR (or per cohort vintage). Logo churn and revenue churn differ — see SaaS metrics.

Self-serve variant: signups → activated → paid conversion → ARPU, with monthly retention curves instead of enterprise churn.

Walking through one month

Month 1 drivers:

• 200 qualified leads
• 25% lead→opportunity
• 20% opportunity→close
• ARPA $12,000 ARR

New customers = 200 × 0.25 × 0.20 = 10
New ARR = 10 × $12,000 = $120,000

Existing book: $800k ARR, 1.5% monthly revenue churn, 1.0% monthly expansion.

Churned    = 800k × 0.015 = $12k
Expansion  = 800k × 0.010 = $8k
Ending ARR = 800 + 120 + 8 − 12 = $916k

Next month's starting ARR is $916k.

Capacity constraints matter. If you only have two AEs who can close ~4 deals/month each, a model that "closes" 10 is lying. Add a sales capacity driver: reps × quota × attainment. Real teams average 60–80% attainment early, not 100% forever.

Cash timing vs accrual

A second sheet (or columns) should map bookings → billings → cash → recognized revenue. Annual prepays spike cash and deferred revenue while recognized revenue stays smooth. Enterprise net-60 terms delay cash even when ARR is "won." Models that only show ARR growth systematically overstate runway. See cash flow and revenue recognition.

Close $240k ARR on Dec 15, invoice net-60, recognize ratably. December bookings look strong. Cash may arrive in February. December P&L revenue is only about half a month of the contract.

Common mistakes

• Churn = 0 because "enterprise doesn't churn." They do. It is slower and lumpier.
• 100% quota attainment forever.
• Funnel volume that ignores AE capacity.

Check yourself

1. 200 leads, 25% to opportunity, 20% to close, $12k ARPA. New ARR? $120,000 from 10 customers.
2. Two AEs can close 4 deals/month each. The funnel says 10. Which number is real? Eight, unless you hire or raise attainment. Add a capacity driver.

Key takeaways

• New ARR = funnel × ARPA. Ending ARR adds expansion and subtracts churn.
• Model rates on the existing book, not only on new logos.
• Sales capacity is a driver. Quota attainment is not 100%.
• Output cash, not just ARR, or you will overstate runway.

Further learning

The cost side of the same sheet: hiring plan in the model.