Financial modeling for non-finance leaders

Why every leader should understand financial models

The phrase financial modeling sounds imposing, but it comes down to ordinary work in Excel: understanding the economics of a business and projecting what comes next. You don't need to be a finance professional to do it.

Over the past five years I have seen, more than once, how a financial model can transform a company. A business that used to grow by gut feel and kept running short of cash by mid-quarter suddenly began to see nine months ahead. Another, pouring money into the wrong acquisition channels, finally realized that half its marketing budget was going to waste.

In this article I'll teach you how to build a basic financial model. It takes about 2 hours the first time; after that, updating it is quick — 30 minutes a month.

Why you need a financial model: three reasons

Reason 1: Understanding your current economics

A financial model shows you how much revenue each customer brings in (average revenue per user / customer lifetime value), how much it costs to acquire them (customer acquisition cost), what margin is left, and how much revenue you generate per employee. Once those numbers sit in a single spreadsheet, the picture of the business becomes honest. Often uncomfortably honest: "I'm losing money," or "I hired too many people." But that beats flying blind.

Reason 2: Forecasting

A financial model lets you ask: "If I hire five salespeople, what will my revenue be next quarter? Will they pay for themselves?" Or: "If I invest ₽1M in marketing, what's the return on investment?" It lets you make decisions based on data rather than instinct.

Reason 3: Conversations with investors

Investors value financial models. Even an imprecise model shows that you've thought through the future and the economics of the business. You can't predict everything in advance, so what investors expect from a model isn't accuracy but sound logic and realistic assumptions.

How a basic financial model is built

Every financial model is built around three parts:

Part 1: Revenue. How much money comes into the company?

Part 2: Costs. How much money leaves the company?

Part 3: Profit. Revenue minus costs.

Let's take them in turn.

Revenue

Revenue = Number of customers × ARPU

ARPU can differ across customer segments. For a SaaS business, say: an enterprise customer might pay ₽10,000/month, while an SMB customer pays ₽5,000/month. You work out a blended ARPU: (₽10,000 × 20% of customers) + (₽5,000 × 80% of customers) = 2,000 + 4,000 = ₽6,000/month on average.

Costs

Variable costs = costs that scale with the number of customers. For example: cloud infrastructure (₽100/month per customer), payment processing (2.9% + a per-transaction fee), customer support (₽500/month per customer if handled in-house, or volume-dependent).

Variable cost per customer = 100 + 500 (payments, say) + 500 (support) = ₽1,100.

Fixed costs = costs that don't change with the number of customers. For example: management salaries, office, marketing, general and administrative, research and development. These are salaries + operating expenses.

Example:

Salaries (engineering, design, PM): ₽2M/month

Salaries (business, sales, marketing): ₽1M/month

Office: ₽500K/month

Marketing: ₽500K/month

Other: ₽200K/month

Total: ₽4.2M/month.

Profit

EBITDA = (Revenue) − (Variable cost per customer × number of customers) − (Fixed costs)

Example:

Revenue: 500 customers × ₽6,000 ARPU = ₽3M/month

Variable costs: 500 × ₽1,100 = ₽550K/month

Fixed costs: ₽4.2M/month

EBITDA = ₽3M − ₽550K − ₽4.2M = −₽1.75M/month

A loss of ₽1.75M/month.

Contribution margin

Contribution margin = ARPU − Variable cost per customer = 6,000 − 1,100 = ₽4,900/month per customer.

So each customer brings in ₽4,900 a month — money that goes toward covering fixed costs.

Break-even point = Fixed costs / Contribution margin = 4.2M / 4,900 = 857 customers.

So the company needs 857 customers to break even. Right now it has 500. That's roughly 1.7x growth needed.

How to build an MVP model: step by step

Step 1: Revenue

Write down how many customers you have now (or how many you forecast). What's the average ticket (average revenue per user)? Revenue = Customers × average revenue per user.

Example: a SaaS project-management tool. 500 customers. Average revenue per user of ₽6,000/month. Revenue = 500 × 6,000 = ₽3M/month.

Step 2: Variable costs

These are the costs that change with the number of customers. For example: cloud server cost per customer, payment-system cost (2.9% + a fee), customer support (where it scales with volume).

Example: the server costs ₽100/month per customer. Payments ₽500/month per customer. Support ₽500/month per customer. Variable costs = 100 + 500 + 500 = ₽1,100/month per customer.

Step 3: Contribution margin

This is revenue minus variable costs. It shows how much money is left after you've paid your variable costs. Contribution margin = ARPU − Variable costs per customer.

Example: Contribution margin = 6,000 − 1,100 = ₽4,900/month per customer, an 81.7% margin.

Step 4: Fixed costs

List all of your fixed costs:

Salaries: ₽3M

Office: ₽500K

Marketing: ₽500K

Software: ₽200K

Total: ₽4.2M

Step 5: EBITDA (profit)

EBITDA = (Contribution margin × number of customers) − Fixed costs.

Example: EBITDA = (4,900 × 500) − 4.2M = 2.45M − 4.2M = −₽1.75M.

A loss of −58% of revenue.

Step 6: Break-even point

How many customers do you need to break even?

Break-even point = Fixed costs / Contribution margin = 4.2M / 4,900 = 857 customers.

How to use the model for forecasting and decision-making

Once the basic model is ready, it's easy to build forecasts on top of it. For example:

"If I hire one salesperson (salary ₽500K/month), how many customers do they need to bring in to pay for themselves?"

500K / 4,900 = 102 customers a month. If an average salesperson brings in 30 customers a month, that's 3.4 months to break even. Is that reasonable? It depends on your customer lifetime value.

Or:

"If I project customer count growing 50% a month over six months, what will my profit be?"

Month 1: 500 customers, EBITDA −₽1.75M

Month 2: 750, EBITDA −₽0.53M

Month 3: 1,125, EBITDA +₽1.31M

Month 4: 1,688, EBITDA +₽4.07M

Month 5: 2,532, EBITDA +₽8.21M

Month 6: 3,798, EBITDA +₽14.41M

Break-even is reached in the third month, and growth accelerates from there. With numbers like these in hand, you can tell investors: "We need funding for 3–4 months of operations (with a four-month buffer), after which the business turns profitable."

A template you can reuse

Revenue

Customers: 500

Average revenue per user: ₽6,000/month

Revenue/month: ₽3M

Variable cost per customer

Server: ₽100

Payments: ₽500

Support: ₽500

Total: ₽1,100/month per customer

Contribution margin

6,000 − 1,100 = ₽4,900/month per customer

81.7% margin

Fixed costs/month

Salaries: ₽3M

Office: ₽500K

Marketing: ₽500K

Software: ₽200K

Total: ₽4.2M

EBITDA (profit)

(4,900 × 500) − 4.2M = −₽1.75M

Loss: −58% of revenue

Break-even point

4.2M / 4,900 = 857 customers

Conclusion

A financial model is simply a way to think about a business systematically. You don't need to be a finance professional to put one together. Start with a simple version that answers the basic questions: what's the contribution margin, how high are fixed costs, is the business profitable? Then add complexity gradually. And above all — update the model every month and let it guide your decisions.