Budgeting: don’t forget the ARR snowball
The simplicity and utility of the ARR Snowball in what can be an overly complex budgeting model and process
I just recently wrapped up a budgeting cycle with my current B2B software company and it reminded me just how complex it can get if you’re not careful. Part of this is the spreadsheet model itself, but the complexity is also related to the process in orchestrating input across internal stakeholders and the board that hopefully lands you with an operating budget that you can manage against for the year. This operating budget may end up being a series of linked spreadsheets, one-off data pulls from your CRM and accounting system, and loosely annotated assumptions from internal stakeholders…all prettied up in a nice board slide.
When you zoom back out though, can you answer the question, “What are the key inputs that really move the needle for the year?” After going in depth on reviewing renewal history, analyzing conference spend and ROI, and fine tuning services attach rate assumptions, the answer to this can get lost.
A helpful tool that has helped me keep the metrics that matter front and center at all times is the ARR Snowball. It takes the starting ARR for the year, subtracts out churn or downsells, and adds back ARR between acquiring new logos and expanding within the existing customer base (price increase, upsell, and cross-sells). This nets out to a year ending ARR that then builds on itself the next year, hints the name “Snowball”.
Snowball insight #1 - enterprise value metrics
In B2B SaaS, key metrics that drive enterprise value are ARR growth, GRR (gross revenue retention), NRR (net revenue retention), and Rule of 40 (growth rate + EBITDA). The Snowball is an easy way to view almost all these metrics in one view for the current budgeting year as well as trending over time. Rule of 40 is missing since you’ll need EBITDA but that’s easy enough to add in from your P&L. See the bottom of the following chart.
In this illustrative model:
ARR growth is steadily increasing north of 20% in 2025 which is positive
GRR is steadily climbing from 90.5% in 2023 into 92.5%. For mid-market or enterprise this is pretty good. This is also banking on modest improvement in retention vs. the prior year so there ought to be defensible customer commitments or initiatives to drive this improvement.
NRR is at 104.2%, up from 100.3%. This isn’t bad but one of the larger opportunities for improvement vs. SaaS benchmarks. Pressure test additional product, enablement or sales execution to increase this further.
As an overall takeaway, this business is trending along the right path across these key enterprise value metrics. In other cases however, that story may not be as straightforward or positive. Getting this view early in the budgeting cycle can help illuminate where your shortfalls are and use goal-seeking to test what inputs need to change in your business in order to start moving EV metrics in the right direction.
Snowball insight #2 - key levers to pull for the year
This ARR Snowball view also forces you to be able to articulate the key initiatives in your business that will move the needle. There’s no room for a multi-tab workbook with hundreds of model assumptions to sift through. The task is if you had to write 1-2 key assumptions that drive each revenue line item, what would they be? And what would each functional area in the business need to do differently to make our goals?
In this example:
Churn - assumes 1% GRR improvement tied to
Product: product usability improvements
Customer Success: implementation of Success Plans to drive proactive engagements with key accounts.
New Logos - for this business, this suggests growth is tied to sales capacity, assuming a clear path to scaling demand gen to feed that capacity. So, what does this mean?
Product Marketing - get ahead of sales enablement so the new seller can hit the ground running
Sales - ensure territories & quotas are set to bring on a new seller and have a clear onboarding plan that maximizes chances of seller productivity
HR - partner with Sales to identify the right seller profile and drive an efficient recruiting process
Price Increase - assumes a 5% price increase. This is the same as the year before
Assuming prior year’s process works, there may not be meaningful new initiative needed here outside of ensuring process scalability to Sales and CS have less administrative overhead for renewals.
Upsell - $400k is assumed based on a new package upgrade
Product Marketing - ensure enablement of new packaging and value proposition of upgrades for Customer Success
Marketing - clarity of new packages on the website, and nurture campaigns for existing customers
Customer Success - training on identification and positioning of new packages. Ensure clear pipeline tracking of new package upgrades in your CRM.
Cross-sell - improved cross-sell execution.
This assumes that meeting goal isn’t contingent on meaningful new product. This might entail.
Marketing - case studies of customer win stories + re-enablement of sales team on new product cross-sells
Sales / Customer Success - definition of CSQLs and incentives for CS to pass warm leads to sales, clearer pipeline goals and tracking.
Wrap
For clarity, by no means am I suggesting this replaces that process and defensible modeling that a business should go through as part of budgeting. In fact, we didn’t touch on product roadmap, operating expenses, non-operating expenses, and cash flow. My experience though is that using this ARR Snowball is a helpful tactical tool to keep your team properly oriented on the metrics that matter, ensure your business is tracking toward creating enterprise value, and drive focus on the initiatives that really move the needle to the plan.