How to build a 3-year financial projection for a startup
Build defensible 3-year revenue, cost, and cash projections in a single Google Sheet — the kind of model investors actually trust.
- A pricing model (subscription, transactional, one-off)
- A guess at unit economics — CAC, churn, gross margin
Step by step
- 01
Start from the bottom up
Never project '$10M revenue year 3 because the market is $1B'. Start from inputs: new customers per month × ARPU × retention = revenue. Top-down projections kill credibility.
- 02
Build the revenue tab
Columns: months 1-36. Rows: new customers, churn %, active customers, ARPU, MRR, ARR. Use formulas — never hardcode totals.
- 03
Add the cost tab
Two sections: COGS (hosting, payment processing, support — scales with revenue) and OpEx (salaries, rent, software — mostly fixed). Salaries are usually 60-70% of OpEx.
- 04
Build the cash flow tab
Opening balance + revenue collected − costs paid = closing balance. This is what tells you when you run out of money — the single most important number in a pitch.
- 05
Add scenarios
Duplicate the model. Base case, bull case (+30% growth), bear case (-30%). Investors ALWAYS ask 'what if you grow half as fast?'
- 06
Sanity-check the unit economics
LTV ≥ 3× CAC and payback period under 12 months are the rough investor benchmarks for SaaS. If yours don't, change the model — not the spreadsheet.
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