How to Budget for Next Year: A Guided Example for SaaS Startups
A strong startup budget answers three important questions: what growth are you aiming for, what will it cost, and can your cash carry you there with room to spare? This guide walks tech entrepreneurs through building that budget step by step. It uses real benchmarks from private B2B SaaS companies similar to yours so you're not shooting in the dark.
Both timing and market trends matter. SaaS growth expectations reset hard in 2025. Lighter Capital's data showed median annual revenue growth fell to 28% in 2025, down from 47% a year earlier. A plan built on 2023-era assumptions will likely overpromise on growth and under-plan for cash.
Throughout this guide, we'll use a worked example: a $1M ARR B2B SaaS company with $500K in the bank and a 6-person team, planning for the 2027 calendar year. Every number in the example comes from a three-scenario budget and runway model built on our recent benchmark data.
Download our financial model to follow along and use it to plan your startup's 2027 budget.
In this article:
Step 1: Set your revenue growth target
Pick where you want to be in December 2027, then budget backward. Everything else, from hiring to marketing spend to your startup's capital needs, follows from this number.
Our financial model uses the latest SaaS benchmarks to calibrate. In 2025, the middle half of private B2B SaaS companies grew revenue between 15% and 65%, with a median of 28%. A plan between the median and the top quartile, roughly 30% to 65%, is ambitious but grounded.
Plan for churn at the same time. Median annual revenue churn was 12.5% in 2025, up slightly from 11.3% in 2024. That works out to about 1.1% of ARR lost per month, which is what our example uses.
Example: Our $1M ARR company sets a Base target of about $1.44M ending ARR, or 44% growth. That sits comfortably between the median and top quartile.
Step 2: Forecast revenue from the bottom up
Don't just add 30% to last year’s ARR. Model revenue month by month from the four things that actually move it:
Starting ARR
New bookings, driven by pipeline, conversion rates, deal size and sales capacity (a new account executive usually needs 3 to 6 months to ramp)
Expansion revenue from upsells and seat growth
Churn and contraction, based on your real retention history
Then sanity-check the result. If the plan needs a close rate you've never hit, or reps you haven't hired yet, it's a dream, not a budget.
Example: Our company books $38K of new ARR in January, growing 2% a month as the sales team scales. Expansions add 0.6% of ARR each month. Here's how 2027 looks month by month in the Base case:
Month | Beginning ARR | +New ARR | +Expansion | -Churn | Ending ARR |
Jan 2027 | $1,000,000 | $38,000 | $6,000 | ($11,000) | $1,033,000 |
Feb 2027 | $1,033,000 | $38,760 | $6,198 | ($11,363) | $1,066,595 |
Mar 2027 | $1,066,595 | $39,535 | $6,400 | ($11,733) | $1,100,797 |
Apr 2027 | $1,100,797 | $40,326 | $6,605 | ($12,109) | $1,135,619 |
May 2027 | $1,135,619 | $41,132 | $6,814 | ($12,492) | $1,171,073 |
Jun 2027 | $1,171,073 | $41,955 | $7,026 | ($12,882) | $1,207,173 |
Jul 2027 | $1,207,173 | $42,794 | $7,243 | ($13,279) | $1,243,931 |
Aug 2027 | $1,243,931 | $43,650 | $7,464 | ($13,683) | $1,281,362 |
Sep 2027 | $1,281,362 | $44,523 | $7,688 | ($14,095) | $1,319,478 |
Oct 2027 | $1,319,478 | $45,414 | $7,917 | ($14,514) | $1,358,294 |
Nov 2027 | $1,358,294 | $46,322 | $8,150 | ($14,941) | $1,397,825 |
Dec 2027 | $1,397,825 | $47,248 | $8,387 | ($15,376) | $1,438,084 |
EOY | $1,000,000 | $509,659 | $85,891 | ($157,467) | $1,438,084 |
Each month's expansion revenue and churn are calculated on that month's beginning ARR, so both grow as the business grows. Monthly churn rises from $11,000 to over $15,000 by December. Notice that churn wipes out nearly a third of new bookings for the year. At $1M ARR, a few points of retention improvement can be worth as much as an extra sales hire.
ARR bridge, 2027 Base case | |
Starting ARR | $1,000,000 |
+ New ARR | $509,569 |
+ Expansion ARR | $85,891 |
− Churned ARR | ($157,467) |
Ending ARR | $1,438,084 |
See How You Compare to Other Startups
The benchmarks used in our financial model come from real operating businesses, not surveys, but the companies are debt-qualified, which skews toward fiscally-disciplined operators. Compare yourself within your industry and stage, and treat the benchmarks as a diagnostic rather than a grade.
Step 3: Size your team against real benchmarks
People are your biggest cost, so build expenses around a headcount plan. List every current role and every planned hire with a start month and a salary. Then add payroll taxes and benefits as one separate line.
DEFINITION
Payroll taxes and benefits are what an employee costs the company on top of salary: employer payroll taxes, health and other benefits, retirement contributions, and payroll-related insurance such as workers' compensation.
In the US, you can budget roughly 25% to 40% of salaries for payroll taxes and benefits. Across all full-time private-sector workers, salaries make up 68.5% of employer costs, so benefits add about 46% on top (BLS). That figure counts paid leave as a benefit, though, and it's already in a salaried employee's pay. Payroll taxes also shrink as a share of pay for higher earners. Our example uses 25%.
Two benchmarks keep your plan grounded in reality:
Salary as a percent of revenue. Companies at $1M to $5M ARR spend a median of 67% of revenue on salary (Salary Cost Benchmarks). Watch the trend more than the snapshot: this ratio should shrink as you grow.
Revenue per employee. The median is $167,500. Under $150K suggests an early-stage or inefficient team, and $250K or more is highly efficient (Revenue per Employee Benchmarks). That sample averages about $4M ARR, and AI products typically run lower, so expect to land a bit under the median R/E at $1M ARR.
Put those together and a $1M ARR company is typically supporting a core team of about six people.
Example: Our company starts 2027 with six people: a CEO, a CTO, one engineer, one account executive, a marketing lead and one customer success manager. It adds a second AE in April and a second engineer in July, ending the year at eight employees. Over the year, revenue per employee lands at $167K, right on the median, and salaries come to 64% of revenue. Payroll taxes and benefits add another $195K on top.
Step 4: Set your sales and marketing budget
There are three ways to set your sales and marketing (S&M) budget. Methods 1 and 2 work top-down from benchmarks. Method 3 builds your plan bottom-up, which can be easily compared to the other two.
Method 1: Spend what peers spend
Private B2B SaaS companies spend a median of 31.6% of revenue on S&M (S&M Spend Benchmarks). Multiply your 2027 planned revenue by that share.
Example: 31.6% × $1.21M revenue ≈ $383K.
This method is quick, but it doesn't tell you whether the spend will pay off. The next method does.
Method 2: Spend what new customers will pay back
CAC payback is the number of months it takes for new customers' gross profit to repay the S&M spent to win them. Pick a payback target, then work out the most you can spend. You need two inputs.
1. Your gross margin. This is the share of revenue left after the cost of delivering your product. Our example company's gross margin is 80.3%. It isn't a benchmark, so use your startup's actual GM:
Gross Profit/Margin Calculations
2027 Base Case | Amount | % of Revenue |
Revenue | $1,211,183 | 100% |
− Hosting & third party costs (12% of revenue) | ($145,342) | 12% |
− Customer support salary | ($75,000) | 6.2% |
− Payroll taxes & benefits (25%) | ($18,750) | 1.5% |
Gross Profit $972,091 | Gross Margin 80.3% |
2. A payback target. Lighter Capital's data shows companies at $1M–$5M ARR earn $1.40 of revenue growth per S&M dollar. At an 80.3% margin, that works out to about an 11-month payback period, a good target:
Now you can set the budget.
Example: Our company plans $509,659 of new ARR in 2027. At the 11-month target, $509,659 × 80.3% × 11/12 ≈ $375K.
Method 3: Build it bottom-up
Add up the costs of people, commissions, and programs required to reach your bookings target. This is how our example company built its bottom-up plan, which put the S&M budget at $420K:
S&M cost, 2027 Base case | Calculation | Amount |
Salaries, existing team | AE $80K + marketing lead $100K | $180,000 |
Salary, new AE (Apr–Dec) | $80K × 9/12 | $60,000 |
Payroll taxes & benefits | 25% × $240,000 | $60,000 |
Sales commissions | 10% × ($509,659 new + $85,891 expansion ARR) | $59,555 |
Marketing programs | $5,000 × 12 months | $60,000 |
Total S&M spend | $419,555 |
Compare the three S&M budgets:
Method 1: Peer benchmark (31.6% of revenue) | Method 2: Payback target (11 months) | Method 3: Bottom-up plan | |
S&M Budget | $383,000 | $375,000 | $420,000 |
The two top-down S&M budget methods agree at about $375K–$383K. The bottom-up plan runs about $40K higher, so its payback period is longer: 12.3 months ($419,555 ÷ ($509,659 × 80.3%) × 12) instead of the 11-month target. To close the gap, the startup will need to improve sales rep productivity, reduce churn, or trim about $40K of spend.
Fund Growth Without Giving Up Equity
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Step 5: Turn your P&L into a cash forecast, then check efficiency
Profit and cash are not the same. Annual upfront billing brings cash in before you earn the revenue. Monthly billing and slow collections bring it in later. Prepaid annual vendor contracts, like a year of software paid upfront, send cash out before you use what you bought.
Alongside your P&L, build a separate monthly cash flow forecast: cash collected, cash paid out and the ending cash balance each month. That ending balance is what tells you whether you'll need capital.
Here's what that looks like for our example company:
Cash on hand never dips below $339K, so this plan can be achieved without raising more money.
Before you approve the plan, run two cash efficiency checks: look at your burn multiple and your Rule of 40 score.
Burn multiple is net burn divided by net new ARR: how many dollars you burn for each dollar of ARR you add. Among private cash-burning SaaS companies, the median for today's software startups is 0.89x (Cash Efficiency Benchmarks). The distribution splits in two: about half of burners sit above 1.0x, and about a quarter sit below 0.33x, with few in between. Above 1.0x is a warning sign unless you're making a deliberate growth push. Below 0.5x puts you in the top quartile.
It's worth noting that burning cash is normal at this stage. Only about a third of the companies in that dataset were cash-flow positive.
Rule of 40 adds your growth rate and your profit margin. For companies at $1M to $5M ARR, the median score is 33% and the average is 44% (Rule of 40 Benchmarks). We suggest using it less as a grade and more as a guide to what kind of capital fits your profile if you need to fundraise.
Example: Our Base case burns $161K in operating cash over 2027 while adding $438K of net new ARR. That's a burn multiple of 0.37x, comfortably in the efficient group. Its Rule of 40 score is 31% (44% growth minus a 12.5% EBITDA loss), just under the cohort median. The business is growing at a moderate pace while still operating at a loss — a "scaling burner." It's in the investment phase, spending ahead of the revenue curve, so efficiency doesn't appear to be problematic.
Step 6: Run three budget scenarios, not one
Your Base case is a best guess. Build a Downside and an Upside too, and decide in advance what you'd cut, and when, if the Downside starts to happen.
How bad should the Downside be, and how good is the Upside? Don't pull numbers out of thin air. Anchor these scenarios to the growth benchmarks from Step 1. Those benchmarks show the real range of outcomes for companies like yours.
Downside = median growth (28%). What happens if you turn out to be an average company?
Base = your plan. Our example targets 44%.
Upside = top-quartile growth (65%). What happens if things go as well as they do for top performing SaaS startups?
Next, adjust bookings and churn until each scenario lands near its target. In our example, the Downside needs bookings 18% below plan and churn 30% higher to land at 28% growth. The Upside needs bookings 35% above plan and churn 20% lower to land at 67%. The team and spending plan stay the same in all three, so the scenarios show what different results do to your cash.
If you haven't already, download our financial model template to plan your startup's Base, Downside, and Upside scenarios and set a realistic budget for 2027.
This is what each scenario looks like for our example company:
Plan 1: Downside | Plan 2: Base | Plan 3: Upside | |
Ending ARR | $1.28M | $1.44M | $1.67M |
ARR growth | 28% | 44% | 67% |
Operating net burn | $212K | $161K | $89K |
Burn multiple | 0.75x | 0.37x | 0.13x |
CAC payback | 15 months | 12 months | 10 months |
Lowest cash balance | $288K | $339K | $403K |
The Downside plan is where there's a weak spot. Bookings fall 18%, churn rises and expansion slows, but the team and spending plan stay the same, so costs barely move. Cash collected falls further behind each month, and that gap becomes extra burn. Meanwhile net new ARR shrinks, so over the full year the burn multiple doubles and payback stretches to 15 months.
The worst stretch comes in July and August, right after the second engineer starts, when the burn multiple briefly tops 1.0x:
Here's where that leaves cash month by month. Burn peaks in July, after the second engineer starts, and cash bottoms out in December. The company still ends the year with $288K, though, so even a median-growth year is survivable.
Does your 2027 plan require more capital?
Find the lowest point in your monthly cash forecast, in both your Base and Downside cases. You likely need capital if either of these is true:
Cash goes below zero before you reach profitability or your next fundraising milestone.
Cash drops below a safety buffer. Six months of average burn is a common target, because raising equity typically takes 3 to 6 months and you don't want to negotiate from desperation.
Your funding need is roughly the gap at that low point plus the buffer.
Example: In the Base case, cash bottoms out at $339K in December 2027. Six months of average burn is about $81K, so there's no funding gap. A company running near benchmark efficiency can fund roughly 40% growth from its own cash.
That changes if you want your startup to grow faster.
Choose capital that fits your growth profile
Say you hire two more AEs and a demand-gen marketer in January, and those hires lift bookings to Upside levels. Growth rises to 61%, but operating burn nearly triples to $458K. Cash bottoms out at just $42K in December, far below a six-month buffer of about $229K. You need roughly $190K in funding, so a raise of $200K or more would be sensible before committing to those new hires.
The benchmarks flag the trade-off too. Burn multiple stays a healthy 0.75x, but revenue per employee drops to $126K and S&M rises to 60% of revenue. Those hires need to ramp quickly to pay off.
Is debt a fit here?
A burn multiple under 1.0x, a modest gap of about $200K, and hires meant to drive recurring revenue are the kind of profile where non-dilutive capital can fund growth. Before deciding, add the repayments to your cash forecast and confirm the low point still clears your buffer. Then apply for funding here.
Matching the capital to the profile
Cash efficiency benchmarks also suggest which kind of capital fits a business best:
Efficient burners (burn multiple under 0.5x) are strong candidates for non-dilutive options like revenue-based financing, venture debt or a credit line, which extend runway without giving up equity.
Teams hiring ahead of revenue aren't alone: about one in three companies in Lighter Capital's portfolio uses debt specifically to fund hiring.
Fast growers with negative margins can raise equity if the market justifies the burn. Revenue-based financing can also fit if revenue is sticky and burn is controlled.
Low growth with negative margins usually signals a business-model problem rather than a capital problem. Throwing more cash at a broken business tends to exacerbate underlying problems, not fix them.
Whichever path you choose, remember that capital amplifies whatever engine you have. If your burn multiple is well above 1.0x, stop and fix efficiency first.
The founders who plan best for 2027 won't be the ones with the most optimistic growth targets. They'll be the ones who know exactly what their growth costs and where their cash bottoms out, so they can raise on their own timeline.
Your 2027 Budget Checklist
Set an ending-ARR target, calibrated to 28% median and 65% top-quartile growth.
Build ARR monthly from new bookings, expansion and churn (about 12.5% annual churn is median).
List every role and hire with start month and salary, plus one line for payroll taxes and benefits.
Check salary against about 67% of revenue and revenue per employee against $167.5K.
Size S&M by return: about $1.40 of revenue growth per S&M dollar, about 11-month CAC payback.
Build a monthly cash forecast, not just a P&L.
Check burn multiple (under 1.0x, ideally under 0.5x) and Rule of 40 (33% cohort median).
Run Base, Downside and Upside, and agree on Downside triggers in advance.
Find the cash low point, add a six-month buffer, and size any raise from the gap.
