SaaS Valuation: The Metrics That Actually Move Multiples

Beyond the ARR Multiple

Everyone knows SaaS companies trade on ARR multiples. But why do some trade at 5x while others command 20x? The answer lies in a handful of key metrics.

The Metrics That Matter Most

1. Net Revenue Retention (NRR)

The single most important metric for SaaS valuation. NRR above 120% means you can grow even with zero new customers.

Why it matters:

• Shows product-market fit
• Indicates upsell/expansion potential
• Reduces customer acquisition pressure

2. Growth Rate

Still the primary multiple driver, but growth quality matters as much as growth rate.

What investors look for:

• Consistent growth (not lumpy)
• Efficient growth (low CAC payback)
• Durable growth (strong retention)

3. Gross Margin

Software should have high margins. Anything below 70% raises questions.

Factors that compress margins:

• Heavy professional services
• Infrastructure costs (especially AI)
• Support intensity

4. Rule of 40

Growth rate + profit margin should exceed 40%. This balances growth and efficiency.

The trade-off:

• 50% growth + (-10%) margin = 40 ✓
• 20% growth + 20% margin = 40 ✓
• Both are valid paths depending on stage

5. CAC Payback Period

How long to recover customer acquisition cost. Best-in-class is under 12 months.

Longer payback means:

• More capital required to grow
• Higher risk if churn increases
• Lower valuation multiples

How These Metrics Interact

High NRR can compensate for slower growth. Strong margins can justify lower growth rates. The best companies excel across multiple dimensions.

Benchmarking Your Metrics

Elite (20x+ ARR multiples):

• NRR > 130%
• Growth > 50%
• Gross margin > 80%
• CAC payback < 12 months

Good (10-15x ARR multiples):

• NRR > 110%
• Growth > 30%
• Gross margin > 70%
• CAC payback < 18 months

Next Steps

Want to understand how your metrics translate to valuation? Book a call for a SaaS-specific valuation discussion.