The growth at all costs era is over. Investors now approach SaaS financials with rigorous scrutiny, looking beyond headline ARR to understand underlying business health.
The 2025 Benchmarkit survey of 583 private B2B SaaS companies reveals a market under pressure: median growth rates have declined to 26% (down from 30% in 2022), net revenue retention sits at just 101%, and the cost to acquire new customers continues rising—up 14% year-over-year. These trends signal that efficient, well-documented financials matter more than ever when fundraising.
While pitch decks tell a story, your SaaS company’s financial statements reveal the truth. Investors look beyond headline ARR to understand underlying business health, examining revenue composition, unit economics, retention patterns, and margin profiles to assess whether a company is building durable value or simply buying growth.
This guide covers the metrics and financial characteristics investors examine most closely, and where the gaps typically emerge that cost founders time, valuation, or both.
Revenue Quality Matters More Than Revenue Size
Investors dissect revenue composition carefully. Recurring subscription revenue commands premium multiples; professional services and implementation fees are often valued at a fraction of that, sometimes excluded from valuation calculations entirely. A company with $8M in high-quality recurring ARR may be valued higher than one with $10M that includes significant services revenue, or other non-recurring revenue.
Revenue concentration is equally important. If your top five customers represent 40% or more of ARR, investors may discount for churn risk. They'll also examine Average Contract Value trends (growing ACV suggests sales maturity and greater product-market fit), deferred revenue on your balance sheet, and increasingly, Remaining Performance Obligations (RPO), which captures contracted future revenue regardless of invoicing status.
Unit Economics: Where Judgment Matters Most
Unit economics tell investors whether you're building a profitable business or buying revenue at unsustainable rates. But the interpretation matters as much as the calculation. Three metrics are particularly important here:
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- Customer Acquisition Cost (CAC)
- CAC Payback Period
- LTV:CAC Ratios
- Gross Margin
Customer Acquisition Cost (CAC) shows the sustainability of your business. The real question is whether what you spend to acquire customers aligns with the revenue those customers generate over time. A higher CAC can be perfectly healthy if your average contract values and retention rates support it; a lower CAC can still be problematic if customers churn quickly or generate minimal revenue. The goal is ensuring your acquisition spending makes sense relative to the lifetime value you're capturing from each customer relationship.
Dig Deeper: Defining Your CAC: How Customer Acquisition Cost Impacts Your Business
CAC Payback Period benchmarks show similar variance. SMB-focused companies typically target 9-12 months; enterprise companies often run 18-24 months. A "bad" payback period isn't automatically disqualifying if retention is strong and LTV justifies the investment. What raises red flags is payback that's long and paired with weak retention, as that signals a structural problem rather than a timing issue.
LTV:CAC ratios of 3-4x remain the general target, but investors adjust expectations based on stage. Early-stage companies with limited cohort data get more latitude; growth-stage companies are expected to demonstrate improving efficiency over time. Ratios below 3x warrant explanation; ratios above 5x may indicate underinvestment in growth.
Gross Margin: Gross margin benchmarks for SaaS remain around 70-85%, but accurate calculation requires proper COGS classification. Hosting, customer support, and third-party software licenses belong in COGS; R&D and sales expenses do not. Misclassifying expenses to inflate gross margin is a red flag experienced investors spot immediately.
Profitability expectations vary significantly by stage. Early-stage companies are generally expected to prioritize growth over margins, though capital efficiency still matters.
Growth-stage companies face increasing pressure to demonstrate a path to profitability, typically measured through improving burn multiples or Rule of 40 scores. Founders sometimes misread later-stage benchmarks as current expectations, but it’s important to remember that investors typically evaluate profitability relative to where you are, not where you're going.
Retention Signals Product-Market Fit
Retention metrics are among the strongest predictors of long-term outcomes, though they work alongside growth efficiency and market size rather than replacing them. Companies with both high net revenue retention and efficient customer acquisition consistently see higher valuations, but strong retention alone doesn't guarantee success if the addressable market is limited or CAC is structurally broken.
Gross Revenue Retention (GRR) measures revenue retained before expansion. Industry medians hover around 88%, with top performers exceeding 95%. GRR reveals core product stickiness independent of your ability to upsell. Net Revenue Retention (NRR) adds expansion revenue. Target benchmarks vary by segment: SMB companies often run 100-105%, while enterprise-focused businesses with land-and-expand motions may target 110% or more. Context matters more than hitting a universal number.
Investors use customer cohort analysis to identify trends in retention. Improving retention over successive cohorts signals operational maturity and product refinement; deteriorating retention, even if current numbers look acceptable, raises concerns about underlying product-market fit.
How Problems Actually Emerge
The issues that derail diligence rarely appear overnight. They accumulate gradually: a chart of accounts that wasn't updated as the business evolved, revenue recognition that followed convenience rather than ASC 606, customer data scattered across systems that don't reconcile. By the time investors request a data room, these operational gaps become visible as inconsistencies, missing cohort data, or metrics that don't tie to financials.
The cost isn't just extended timelines. Investors may apply valuation haircuts when they perceive risk in financial controls. In competitive processes, the company with cleaner financials wins even if underlying metrics are similar. Don’t underestimate the importance of investors being able to quickly validate what they're being told.
How Investors Use These Metrics to Determine Valuations
It goes without saying that no single metric determines the valuation of a company. Investors weigh growth rate, retention, unit economics, and margin profile together, adjusting expectations based on stage, market, and go-to-market motion. A company growing 80% with weak retention may be less attractive than one growing 40% with 120% NRR and efficient CAC. The Rule of 40 remains a useful heuristic precisely because it forces this tradeoff into a single framework.
Strong performance alone isn't always enough to close a round efficiently. Companies that combine solid metrics with clear, well-organized financial reporting make it easier for investors to see what's under the hood, reducing the diligence burden and building confidence faster. When investors have to dig through disorganized data to uncover the real story, it creates friction that can slow deals down or raise unnecessary concerns, even when the underlying business is sound.
Preparing Before the Process Starts
At G-Squared Partners, we help SaaS companies build financial infrastructure that withstands investor scrutiny before diligence begins. That means ARR reconciliation that ties cleanly to GAAP revenue, cohort reporting that tells a clear retention story, and metrics dashboards investors can validate quickly. Our clients typically enter fundraising with shorter diligence timelines and fewer valuation adjustments because the work was done upfront, not under pressure.
If you're beginning to prepare for a raise or exit, now is the time to address gaps. Contact G-Squared Partners to discuss how we can help you prepare.
