The SaaS metrics investors will ask for, and how to keep them honest
Recurring revenue, churn, acquisition cost and payback. Investors judge software companies on a handful of numbers. Define them clearly, and report them the same way every month.
For a software company, the profit and loss account tells only part of the story. Investors want to know how much revenue repeats, how much leaks away each year and how quickly the cost of winning a customer is earned back.
The core metrics
- ARRAnnual recurring revenue: the yearly value of active subscriptions, excluding one-off fees.
- ChurnRevenue lost from cancellations and downgrades, as a share of revenue at the start.
- Net retentionRevenue from last year’s customers this year, including upgrades, against last year.
- CAC paybackMonths of gross margin from a new customer needed to recover what it cost to win them.
Keeping them honest
Metrics lose credibility when definitions drift: a free trial counted as revenue, or annual contracts counted twelve times. Write each definition down, calculate it from the accounting and billing systems, not a separate spreadsheet, and show it monthly against the same definition.
Where the accounts meet the metrics
Revenue recognition matters: annual subscriptions paid upfront are earned over the year, not when cash arrives. Getting that right in the books, and reconciling ARR to recognised revenue, is one of the first things an investor’s due diligence will test.
This insight is general information, not advice for your circumstances. Talk to us before acting on it.