Blog · Published 2026-11-04

Key metrics for a SaaS company acquisition, and how to test each one.

The key metrics in a SaaS acquisition are recurring revenue, net and gross revenue retention, customer churn, gross margin, customer concentration and the cost of acquiring a customer. Each one matters less than whether it can be rebuilt from the billing export and the statements using a definition you wrote down. A metric you cannot rebuild is a seller's claim, not a fact.

Why definitions come before numbers

Two companies can report the same retention figure and mean different things. One counts expansion from new products, the other does not; one measures by customer, the other by revenue; one excludes customers lost in their first months. The definition decides the number, so the first diligence step is to get the seller's definition in writing and the second is to apply your own.

This article defines each metric and says how to test it. It gives no benchmark for a good figure: we have not found a public benchmark we can verify that applies to a small company in your sector, and a benchmark that does not fit can mislead more than none at all.

The metrics, defined and tested

Metric	What it measures	How to test it
Recurring revenue (ARR or MRR)	Annualized or monthly value of subscription contracts in force at a date.	Rebuild it from the billing export, contract by contract. Exclude set-up fees, services and one-off charges unless the seller's definition says otherwise, then show both versions.
Gross revenue retention	Revenue kept from an opening group of customers, after downgrades and losses, before any expansion.	Take the customers billing at the start of a period and their revenue at the end. Expansion is left out by definition.
Net revenue retention	Revenue from the same opening group, including expansion and price increases.	Same group as above, expansion included. Ask how much came from price rises rather than more usage.
Customer churn	Share of customers lost in a period.	Count from the customer list with start and end dates. Check whether paused or downgraded customers are counted as active.
Gross margin	Revenue less the direct cost of delivering the service, as a share of revenue.	Check which costs sit above the line: hosting, third-party software, support staff. Moving them below the line raises the margin without changing the business.
Customer concentration	Share of revenue from the largest customers.	Compute it from revenue by customer and compare with what the CIM says.
Customer acquisition cost and payback	Sales and marketing spend per new customer, and how long the customer takes to repay it.	Ask which costs are included and over what period. Founder-led sales often leave this cost out entirely.
Deferred revenue	Cash collected for service not yet delivered, such as annual prepayments.	Check it in the balance sheet and in the billing export. Large prepaid contracts can make a trailing period look stronger than the run rate.

Where the figures in a CIM tend to drift

Each of these is a contradiction between a statement and a document, which is the kind of finding a document-reading tool can surface. Deciding which version is right remains your work and your accountant's. The same logic for add-backs is in QoE testing: what reviewers check.

Recurring includes what does not recur. Services, implementation fees and usage spikes counted as subscription revenue.
Retention measured on a flattering group. Customers that left early, or a product line that was shut down, removed from the base.
Concentration described in words. A sentence such as no customer is a large share of revenue, with no table behind it, or a table that disagrees.
Gross margin without hosting. Infrastructure or support staff placed in operating expenses.
Run rate from a single month. An annualized figure built from the best recent month instead of contracts in force.

The documents that prove the metrics

If the data room does not hold these, the metrics cannot be tested, whatever the CIM says. The data room checklist covers how to find what is missing, and the software acquisition checklist lists the rest of the software-specific requests.

A billing system export, by customer and by period, for the periods you are underwriting.
Revenue by customer, ideally for several years, so you can follow each customer through time.
The financial statements and tax returns, so the billing export can be tied to reported revenue.
A deferred revenue schedule, if customers prepay.
The top customer contracts, so that renewal terms and termination rights match the retention story.

How Deal OS fits

Deal OS reads the CIM, the statements, the tax return and other documents you upload, and reports where a figure or definition differs between them, each finding cited to its page. It does not connect to the seller's billing system or compute retention from raw billing data you have not uploaded. Open the sandbox to see real output on synthetic deals, and pricing for how a single deal is priced.

Worked example from the sample brief

The definition problem in practice, from the sample brief. The company is synthetic and not a software business, but the recurring revenue finding is exactly the test this article describes:

A definition that changes what a number means. Page 7 says about 78% of revenue is recurring. Page 22 defines recurring as all revenue from accounts with an active inspection agreement, including repair and call-out work. The brief flags the two passages as inconsistent and asks for a revenue cut that separates fixed billings from variable work.
Concentration that the documents contradict. The CIM says on page 8 that no customer is more than 15% of revenue. Page 9 lists the top account at $1,366,000 against $6.21M of revenue, which the brief computes as 22.0%.
A headline figure stated two ways. Trailing twelve month revenue is $6.21M on page 6 of the CIM and $5.95M as gross receipts on the tax return. The brief shows the gap side by side and says to reconcile it before applying any multiple.

The example is Sentinel Fire & Safety, Inc., a synthetic company built to show the product. Nothing in it describes a real business, and the same output shape applies to a real data room. See the whole thing at /sample-brief.

Questions

Frequently asked questions.

What are the most important metrics when buying a SaaS company?

Recurring revenue, gross and net revenue retention, customer churn, gross margin, customer concentration and customer acquisition cost. Each should be rebuilt from the billing export and the statements using a written definition.

What is the difference between gross and net revenue retention?

Both start from the same group of customers. Gross retention counts only what was kept after downgrades and losses; net retention also adds expansion and price increases from that group.

What is a good net revenue retention for a small SaaS acquisition?

We do not give a benchmark, because we have not found a public figure we can verify that applies across sectors and company sizes. Compare the company with its own history and test how the seller defines the metric.

Why does the definition of recurring revenue matter so much?

Because it decides what a buyer is paying a multiple on. Counting services, set-up fees or usage spikes as recurring raises the figure without making the revenue more durable.

Which documents do I need to test SaaS metrics?

A billing export by customer and period, revenue by customer over several years, the financial statements and tax returns, a deferred revenue schedule and the top customer contracts.

Keep reading

See it on a deal.

Open a real brief on a synthetic deal without an account, or check how a single deal is priced.

Try the sandbox Pricing