SaaS Financial Metrics for Series A: The Complete Deep-Dive
You've built a solid product, signed real customers, and MRR is trending up. Now you're gearing up for a Series A — and the first thing every VC will do is pull apart your SaaS financial metrics like an engine mechanic diagnosing a misfire.
The problem? Most founders track vanity metrics. They know their top-line MRR, maybe their churn rate, and can quote an LTV number they calculated once on a napkin. That's not going to cut it. VCs have seen thousands of pitch decks and hundreds of data rooms. They know exactly which numbers reveal a healthy business and which ones paper over cracks.
I've reviewed models from both sides of the table — as a PE fund controller at Arle Capital Partners (a £2B AUM private equity fund) and as a fractional CFO helping SaaS founders raise capital. The founders who raise at strong valuations aren't the ones with the best product demos. They're the ones who walk into the room knowing their numbers cold — every metric, every trend, every benchmark — and can explain exactly what each one means for the business.
This guide covers every financial metric a SaaS company needs to master before a Series A. Not surface-level definitions — real formulas, real benchmarks, worked examples, and the specific thresholds investors use to separate fundable companies from "interesting but not yet" companies.
Series A investors evaluate 12–15 core SaaS metrics including MRR/ARR waterfall, LTV:CAC ratio (minimum 3:1), net dollar retention, gross margin (target 70–85%), burn rate, and Rule of 40 score. Calculate every metric with fully-loaded costs—not the flattering versions—because VCs will recalculate them during diligence. Present them in a cohesive dashboard that tells a consistent growth story.
- MRR/ARR Waterfall — The Heartbeat of Your SaaS
- Unit Economics — LTV, CAC & the Ratios That Matter
- Churn Analysis — Logo vs Revenue, Gross vs Net
- Burn Rate & Runway — The Clock VCs Are Watching
- The Rule of 40 — Growth + Profitability in One Number
- The Magic Number — Sales Efficiency Decoded
- Net Dollar Retention — The Metric That Separates Good from Great
- Gross Margin — Why 70%+ Is Non-Negotiable
- The Metrics Dashboard VCs Want to See
- 8 Financial Mistakes SaaS Founders Make Before Series A
- Frequently Asked Questions
1. MRR/ARR Waterfall — The Heartbeat of Your SaaS
Monthly Recurring Revenue is the single most important number in any SaaS business. But the raw MRR figure is just the headline. VCs want to see the MRR waterfall — the breakdown of exactly how your revenue moves month to month. It tells them whether your growth is real, sustainable, and where the risks are hiding.
The Five Components of an MRR Waterfall
- Beginning MRR — your starting revenue for the month
- New MRR — revenue from brand-new customers acquired that month
- Expansion MRR — additional revenue from existing customers (upgrades, add-ons, seat expansion)
- Contraction MRR — revenue lost when existing customers downgrade
- Churned MRR — revenue lost from customers who cancel entirely
Net New MRR = New MRR + Expansion MRR − Contraction MRR − Churned MRR
Sample MRR Waterfall — 6-Month View
| Component | Jan | Feb | Mar | Apr | May | Jun |
|---|---|---|---|---|---|---|
| Beginning MRR | $85,000 | $93,200 | $102,400 | $112,200 | $123,000 | $134,500 |
| + New MRR | $7,500 | $8,200 | $9,100 | $10,300 | $11,000 | $12,200 |
| + Expansion MRR | $3,200 | $3,800 | $4,100 | $4,500 | $5,000 | $5,400 |
| − Contraction MRR | ($800) | ($950) | ($1,100) | ($1,200) | ($1,300) | ($1,400) |
| − Churned MRR | ($1,700) | ($1,850) | ($2,300) | ($2,800) | ($3,200) | ($3,500) |
| Ending MRR | $93,200 | $102,400 | $112,200 | $123,000 | $134,500 | $147,200 |
| Net New MRR | $8,200 | $9,200 | $9,800 | $10,800 | $11,500 | $12,700 |
| MoM Growth | 9.6% | 9.9% | 9.6% | 9.6% | 9.3% | 9.4% |
Notice a couple of things about this waterfall. First, churned MRR is growing — from $1,700 to $3,500. That's normal at this stage because it's a percentage of a growing base. But VCs will check whether churn as a percentage is stable or deteriorating. Second, expansion MRR is strong, nearly offsetting churn on its own. That's a sign of healthy product-market fit and good upsell motion.
2. Unit Economics — LTV, CAC & the Ratios That Matter
Unit economics tell VCs whether your business model actually works — whether each customer you acquire generates more value than they cost. This is where most SaaS founders stumble, because they either oversimplify the calculation or use the wrong inputs.
Customer Acquisition Cost (CAC)
Include: ad spend, sales salaries + commissions, marketing team costs,
SDR/BDR costs, tooling (CRM, marketing automation), events, content production
The critical word here is fully loaded. Don't calculate CAC using only your ad spend. Include every person, tool, and expense dedicated to acquiring customers. If your SDR team costs $35K/month and your paid media is $20K/month, your total S&M spend is $55K — not $20K.
Customer Lifetime Value (LTV)
Where Customer Lifetime = 1 / Monthly Churn Rate
Example: $150 ARPU × 78% margin × (1 / 0.03 churn) = $150 × 0.78 × 33.3 months
LTV = $3,897
LTV:CAC Ratio
This is the metric. If VCs look at one unit economics number, it's LTV:CAC.
| LTV:CAC Ratio | What It Signals | VC Reaction |
|---|---|---|
| Below 1:1 | You lose money on every customer | Hard pass — fundamentally broken economics |
| 1:1 to 2:1 | Barely breaking even on acquisition | Needs significant improvement before investing |
| 2:1 to 3:1 | Getting there, but margins are thin | Possible at seed, but risky for Series A |
| 3:1 to 5:1 | Healthy unit economics — the sweet spot | Green light — efficient and scalable |
| Above 5:1 | Very profitable per customer | Great — but may indicate under-investment in growth |
CAC Payback Period
Example: $1,200 CAC / ($150 × 0.78) = $1,200 / $117 = 10.3 months
| Payback Period | Assessment | Series A Readiness |
|---|---|---|
| < 12 months | Excellent — fast capital recovery | Strong ✓ |
| 12–18 months | Acceptable for B2B SaaS | Acceptable ✓ |
| 18–24 months | Concerning — slow payback strains cash | Needs improvement |
| > 24 months | Dangerous — you need 2 years just to break even | Not Series A ready |
Worked Example — Complete Unit Economics
SaaS Co. "MetricFlow" — Series A Unit Economics
| Monthly ARPU | $250 |
| Gross Margin | 82% |
| Monthly Logo Churn | 2.8% |
| Customer Lifetime | 1 / 0.028 = 35.7 months |
| LTV | $250 × 0.82 × 35.7 = $7,318 |
| Fully Loaded CAC | $1,850 |
| LTV:CAC | $7,318 / $1,850 = 3.96:1 ✓ |
| CAC Payback | $1,850 / ($250 × 0.82) = 9.0 months ✓ |
This company is Series A ready from a unit economics standpoint: LTV:CAC above 3:1 and CAC payback under 12 months.
3. Churn Analysis — Logo vs Revenue, Gross vs Net
Churn is the silent killer of SaaS businesses. Even a small increase in churn rate compounds over time and can completely negate your growth efforts. VCs probe churn metrics deeply because they reveal the truth about product-market fit.
Four Types of Churn You Must Track
| Churn Type | Formula | What It Measures |
|---|---|---|
| Monthly Logo Churn | Customers Lost / Starting Customers × 100 |
Percentage of customers who cancel |
| Monthly Revenue Churn (Gross) | (Churned MRR + Contraction MRR) / Starting MRR × 100 |
Total MRR lost (before expansion offsets) |
| Monthly Revenue Churn (Net) | (Churned + Contraction − Expansion) / Starting MRR × 100 |
MRR lost after expansion — can be negative |
| Annual Gross Churn | 1 − (1 − Monthly Gross Churn)^12 |
Annualised revenue loss |
A company could have 8% monthly logo churn (lots of small customers leaving) but only 1.5% monthly revenue churn (large customers staying). Or the reverse — 2% logo churn but 5% revenue churn because a large enterprise account cancelled. VCs look at both because they tell different stories: logo churn reflects broad product-market fit, while revenue churn shows the financial impact.
B2B SaaS Churn Benchmarks
| Metric | Concerning | Acceptable | Strong | Elite |
|---|---|---|---|---|
| Monthly Logo Churn | > 7% | 5–7% | 3–5% | < 2% |
| Monthly Revenue Churn (Gross) | > 3% | 2–3% | 1–2% | < 1% |
| Annual Logo Churn | > 50% | 30–50% | 15–30% | < 15% |
| Annual Revenue Churn (Gross) | > 25% | 15–25% | 8–15% | < 8% |
Cohort Analysis — Why Averages Lie
Averages hide the truth. A 3% monthly churn rate could mean every cohort churns at 3%, or it could mean your January cohort churns at 8% while your June cohort churns at 1% (because you improved onboarding). VCs want cohort-based retention analysis showing how each monthly signup cohort retains over time.
A healthy cohort curve drops steeply in months 1-3 (trial users or poor fits leaving) then flattens into a retention plateau. If your curves keep dropping month after month without flattening, you don't have product-market fit yet. If they flatten at 70-80% retention by month 6, you're in strong shape for Series A.
4. Burn Rate & Runway — The Clock VCs Are Watching
Every VC mentally calculates your runway within the first five minutes of looking at your financials. How much cash you have, how fast you're spending it, and how long before you hit zero — this is the clock that determines urgency, valuation leverage, and whether you're a confident raise or a desperate one.
Gross Burn vs Net Burn
Net Burn = Total monthly expenses − Total monthly revenue
Runway (months) = Cash Balance / Net Monthly Burn
Gross burn tells VCs your total cost structure — what it costs to run the entire operation. Net burn tells them how fast you're actually consuming cash after revenue offsets expenses. Both matter. A company with $200K gross burn and $180K revenue has a $20K net burn, which is very different from $200K gross burn with $50K revenue.
Worked Example
Runway Calculation — "MetricFlow" Example
| Cash in Bank | $1,800,000 |
| Monthly Revenue | $134,500 (MRR) |
| Monthly Expenses | $245,000 |
| Gross Burn | $245,000 |
| Net Burn | $245,000 − $134,500 = $110,500 |
| Runway | $1,800,000 / $110,500 = 16.3 months |
The 18-Month Rule
The industry standard is to close your round with 18-24 months of runway. Since fundraising typically takes 3-6 months, you should start the process with at least 20-24 months of cash remaining. Here's why the maths matters:
| Runway Remaining | Situation | Impact on Fundraise |
|---|---|---|
| 18+ months | Comfortable — you're raising from a position of strength | Maximum leverage; can walk away from bad terms |
| 12–18 months | Adequate — but you need to start now | Some leverage, but VCs know you have a timeline |
| 6–12 months | Tight — VCs sense urgency and discount accordingly | Weakened negotiating position; may accept worse terms |
| < 6 months | Emergency — survival mode | Predatory terms, bridge rounds, or failure to close |
When runway drops below 6 months, everything changes. VCs who were interested suddenly slow-walk their process. Term sheets come in with aggressive liquidation preferences, anti-dilution provisions, and board control clauses. Existing investors may offer bridge rounds at deep discounts. I've seen founders give up 40% of their company in a bridge round that would have been a 15% dilution raise if they'd started three months earlier. Cash runway is a negotiating weapon. Don't let it expire.
5. The Rule of 40 — Growth + Profitability in One Number
The Rule of 40 is the simplest benchmark VCs use to evaluate the overall health of a SaaS business. It balances the trade-off between growth and profitability — the fundamental tension in every SaaS company.
Target: ≥ 40%
Example A: 80% growth + (-35%) margin = 45% ✓
Example B: 25% growth + 20% margin = 45% ✓
Example C: 40% growth + (-15%) margin = 25% ✗
Notice that both Example A (hyper-growth, burning cash) and Example B (moderate growth, profitable) score 45%. The Rule of 40 doesn't prescribe how you get there — it just says the combination needs to exceed 40%. At Series A, VCs heavily weight growth over profitability, so Example A is actually more attractive than Example B to most investors.
Rule of 40 by Stage
| Stage | Typical Growth | Typical Margin | Rule of 40 | Assessment |
|---|---|---|---|---|
| Pre-Seed / Seed | 100-300% | -80% to -200% | Varies wildly | Not meaningful yet |
| Series A | 80-150% | -40% to -10% | 40-110% | Growth-driven score is fine |
| Series B | 50-100% | -20% to 5% | 40-80% | Path to profitability emerging |
| Growth / Pre-IPO | 25-50% | 10-25% | 40-65% | Balanced growth + margin expected |
| Public SaaS (Median) | 20-30% | 10-20% | 30-50% | Mature efficiency expected |
Why VCs Use It
The Rule of 40 lets VCs compare companies at different stages. A company growing at 120% with -70% margins isn't directly comparable to one growing at 30% with 15% margins — unless you have a single yardstick. The Rule of 40 provides exactly that. It's also a fast filter: if your score is below 20%, there's a fundamental problem with either your growth engine or your cost structure (or both).
6. The Magic Number — Sales Efficiency Decoded
The Magic Number measures how efficiently your sales and marketing engine converts spend into new recurring revenue. It answers a simple question: for every dollar you invest in go-to-market, how much new ARR comes back?
Example: $180K net new ARR / $210K S&M spend = 0.86 ✓
The previous quarter's spend is used because there's typically a lag between when you spend on sales and marketing and when that spend converts to closed revenue.
Interpreting the Magic Number
| Magic Number | Signal | Action |
|---|---|---|
| < 0.5 | Poor sales efficiency — GTM engine needs work | Fix the funnel before scaling spend |
| 0.5 – 0.75 | Moderate efficiency — approaching scale-readiness | Optimise conversion, then cautiously increase spend |
| 0.75 – 1.0 | Good efficiency — GTM is working | Invest more aggressively in S&M |
| > 1.0 | Excellent — every dollar returns more than a dollar of ARR | Pour fuel on the fire — you're under-spending |
How to Improve Your Magic Number
- Improve conversion rates at each funnel stage (lead → MQL → SQL → opportunity → closed-won)
- Increase average deal size — if sales effort is similar for small and large deals, focus on larger contracts
- Shorten sales cycles — faster deal close means the same spend produces ARR sooner
- Reduce S&M spend on low-converting channels — kill what doesn't work before scaling what does
- Improve onboarding-to-activation — customers who activate faster expand faster
7. Net Dollar Retention — The Metric That Separates Good from Great
If I had to pick one metric that predicts long-term SaaS success, it's Net Dollar Retention (NDR). NDR tells you what happens to a dollar of revenue over time — does it grow, stay flat, or shrink? A company with 130% NDR literally grows without acquiring a single new customer. That's the ultimate compounding machine.
Measured over 12 months for an annual view, or monthly and annualised
What NDR Looks Like in Practice
| Metric | Company A (80% NDR) | Company B (110% NDR) | Company C (130% NDR) |
|---|---|---|---|
| Year 1 Cohort Revenue | $100K | $100K | $100K |
| Year 2 | $80K | $110K | $130K |
| Year 3 | $64K | $121K | $169K |
| Year 4 | $51K | $133K | $220K |
| Year 5 | $41K | $146K | $286K |
| 5-Year Total from Cohort | $336K | $610K | $905K |
The difference is staggering. Company C generates 2.7× more revenue from the same cohort of customers over five years compared to Company A. This is why VCs are obsessed with NDR — it's the single best predictor of long-term revenue growth and capital efficiency.
NDR Benchmarks
| NDR Range | Assessment | Typical Company Profile |
|---|---|---|
| < 90% | Leaky bucket — growth requires constant new sales | Weak product-market fit or pricing issues |
| 90–100% | Stable but not expanding — existing customers flat | Decent retention, no upsell motion |
| 100–120% | Healthy expansion — customers growing over time | Good product with seat/usage expansion built in |
| 120%+ | Elite — the hallmark of best-in-class SaaS | Strong platform with multiple expansion vectors |
8. Gross Margin — Why 70%+ Is Non-Negotiable
SaaS gross margin tells VCs whether you're truly a software company or a services company wearing a software costume. High gross margins are the reason SaaS companies trade at premium multiples — the incremental cost of serving each additional customer is near zero. If your margins look like a consulting firm, VCs will value you like one.
SaaS COGS includes: hosting/infrastructure, customer support & success,
DevOps/SRE, third-party APIs embedded in the product, payment processing fees
SaaS COGS does NOT include: R&D, sales, marketing, G&A
What VCs Expect
| Gross Margin | Assessment | VC Interpretation |
|---|---|---|
| 85%+ | Elite — pure software economics | Premium valuation multiples |
| 75–85% | Strong — healthy SaaS business | Standard SaaS multiples apply |
| 65–75% | Acceptable — but needs a story | Questions about scaling COGS and services mix |
| < 65% | Red flag — services or infrastructure-heavy | Won't get SaaS multiples; may not get funded |
Common Gross Margin Killers
- Professional services revenue mixed in — if you have implementation, training, or consulting revenue, report it separately. PS margins of 20-40% drag down your blended SaaS margin.
- Over-provisioned infrastructure — AWS bills that haven't been optimised. Reserved instances, spot instances, and right-sizing can cut hosting costs 30-50%.
- Expensive third-party APIs — if your product wraps around a third-party service that charges per-call, that cost scales linearly with usage and destroys margin at scale.
- Customer success team overloaded — CSM teams handling support tickets instead of expansion conversations. High-touch support is a COGS drag; automate or tier it.
For most early-stage SaaS, hosting costs are 5-15% of revenue. At scale, best-in-class companies get this below 5%. Quick wins: reserved instances (save 30-40% on predictable workloads), auto-scaling (don't pay for idle capacity), CDN for static assets (reduce origin server load), and database query optimisation (the single biggest driver of compute costs). A cloud cost audit typically saves 20-40% within the first month.
9. The Metrics Dashboard VCs Want to See
VCs evaluate dozens of companies simultaneously. They need to quickly assess whether your metrics clear the bar. The best way to present this is a single-page metrics dashboard with clear benchmarks. Here's the complete list of metrics with Series A thresholds.
| Metric | Minimum | Good | Great |
|---|---|---|---|
| ARR | $1M | $1.5–2.5M | $3M+ |
| MRR Growth (MoM) | 8% | 10–15% | 15%+ |
| ARR Growth (YoY) | 2× | 2.5–3× | 3×+ |
| LTV:CAC Ratio | 3:1 | 3.5–5:1 | 5:1+ |
| CAC Payback Period | < 18 months | < 12 months | < 8 months |
| Monthly Logo Churn | < 5% | < 3% | < 2% |
| Monthly Revenue Churn (Gross) | < 2% | < 1.5% | < 1% |
| Net Dollar Retention | 100% | 110–120% | 120%+ |
| Gross Margin | 70% | 75–80% | 80%+ |
| Rule of 40 Score | 40% | 50–70% | 70%+ |
| Magic Number | 0.5 | 0.75–1.0 | 1.0+ |
| Runway (post-raise) | 18 months | 20–24 months | 24+ months |
| Burn Multiple | < 3× | < 2× | < 1.5× |
| Revenue per Employee | $80K+ ARR | $120–180K ARR | $200K+ ARR |
| Months to Recover CAC | < 18 | < 12 | < 8 |
You don't need every metric in the "Great" column. VCs evaluate the overall pattern. A company with strong growth and NDR but mediocre gross margin tells a different story than one with good margins but flat growth. The minimum column shows where you must not fall below. If any metric is below the minimum, fix it before you raise — or have a compelling explanation for why it will improve with the capital you're raising.
10. Eight Financial Mistakes SaaS Founders Make Before Series A
After helping dozens of SaaS companies prepare for fundraising, I've seen the same mistakes repeat. These aren't edge cases — they're patterns. Any one of them can derail your Series A or cost you millions in valuation.
Reporting Vanity Metrics Instead of Real Ones
Total signups, page views, "users" (who haven't logged in for 60 days), or gross revenue that includes one-time setup fees. These tell VCs nothing about the recurring health of your business. The most dangerous vanity metric I see is bookings vs recognised MRR — a $120K annual contract is not $120K MRR. It's $10K MRR recognised monthly.
Counting Annual Contracts as Monthly Revenue
A customer signs a $24,000 annual contract and pays upfront. The founder adds $24K to that month's revenue. Under any reasonable accounting standard (and for SaaS metric purposes), that's $2K/month recognised over 12 months. The upfront cash is great for cash flow, but it's deferred revenue, not MRR. VCs who spot this immediately question every other number in your model.
Calculating CAC with Only Ad Spend
Your paid media budget is $15K/month. You acquired 30 customers. "Our CAC is $500." But you also have two SDRs ($12K/month total), a marketing manager ($8K/month), HubSpot ($1.2K/month), and attend one conference per quarter ($6K amortised to $2K/month). Your real fully-loaded CAC is ($15K + $12K + $8K + $1.2K + $2K) / 30 = $1,273. More than double the "headline" figure.
Ignoring Professional Services Margins
Many SaaS companies offer implementation, onboarding, or customisation services alongside their software. If you blend PS revenue with SaaS revenue in your gross margin calculation, you'll report 60% margins instead of 78% SaaS margins + 25% PS margins. VCs will see the blended number and assume you're a low-margin business.
No Cohort-Level Retention Data
Reporting a single churn rate — "our monthly churn is 3%" — tells VCs almost nothing. Which customers are churning? The January cohort or the June cohort? SMB accounts or mid-market? Self-serve signups or sales-led? Without cohort analysis, you can't demonstrate that product improvements are actually reducing churn, and VCs can't assess the true retention quality of your business.
Projections Disconnected from Operational Reality
The model shows tripling revenue in 18 months, but the hiring plan adds two sales reps. Or the model projects $5M ARR by month 24, but the company's sales cycle is 90 days and they'd need to close 15 deals per month at an ACV they've never achieved. When VCs stress-test your projections against your operational capacity, the model falls apart.
Not Knowing Your Burn Multiple
Burn multiple = net burn / net new ARR. If you're burning $300K/month to add $120K in net new ARR, your burn multiple is 2.5×. That means you're spending $2.50 to generate $1 of new ARR — expensive, but potentially acceptable at Series A if you're investing in product and GTM. Above 3× is a red flag. Many founders have never calculated this number, which tells VCs they don't understand the efficiency of their spend.
Inconsistent Metric Definitions Across Materials
Your pitch deck says MRR is $150K. Your data room spreadsheet shows $138K. Your Stripe dashboard says $162K. The discrepancy exists because each source uses a different definition — one includes setup fees, another annualises quarterly contracts differently, the third counts trialling users. Nothing erodes VC trust faster than inconsistent numbers across your materials.
Frequently Asked Questions
What SaaS metrics do VCs look at before Series A?
VCs focus on 12-15 core metrics: MRR/ARR and the MRR waterfall (new, expansion, contraction, churned), LTV:CAC ratio (minimum 3:1), CAC payback period (under 18 months), logo churn (under 5% monthly), revenue churn (under 2% monthly), net dollar retention (above 100%), gross margin (70-85%), burn rate and runway (18+ months), Rule of 40 score, Magic Number (0.75+), and burn multiple. The specific thresholds vary by vertical and deal size, but these metrics appear on every VC's evaluation checklist.
What is a good LTV:CAC ratio for SaaS?
At minimum, 3:1. This means every dollar spent acquiring a customer returns at least three dollars in gross-margin-adjusted lifetime value. Between 3:1 and 5:1 is the sweet spot that shows scalable, capital-efficient growth. Above 5:1 is excellent, though some VCs may question whether you're under-investing in customer acquisition. Below 3:1, you'll struggle to find Series A investors willing to bet that your economics will improve.
How do you calculate SaaS net dollar retention?
NDR = (Starting MRR + Expansion MRR − Contraction MRR − Churned MRR) / Starting MRR × 100. For a 12-month view, take the MRR from customers who were active at the start of the period and compare it to what those same customers contribute 12 months later. NDR above 100% means your existing customer base is growing without any new sales. The best B2B SaaS companies achieve 120-140% NDR.
What Rule of 40 score do investors want?
The benchmark is 40% (revenue growth rate + profit margin ≥ 40%). At Series A, VCs are comfortable with growth-driven scores — a company growing 90% with -40% margins scores 50%, which is strong. The trend matters as much as the number itself. If your Rule of 40 is improving quarter-over-quarter, that trajectory is very compelling even if the absolute number isn't yet at 40%.
How much runway should a SaaS startup have before raising?
Start the fundraising process with 20-24 months of runway. Raising typically takes 3-6 months, so aim to close with 18 months of cash. Below 12 months, your negotiating leverage drops. Below 6 months, you're in emergency territory — expect predatory terms or inability to close at all. Calculate runway as cash balance divided by net monthly burn (total expenses minus total revenue).
What gross margin do VCs expect from SaaS companies?
70-85% for true SaaS businesses. COGS should include hosting, customer support/success, DevOps, third-party APIs, and payment processing only. It should not include R&D, sales, marketing, or G&A. If your gross margin is below 65%, VCs will question whether you're a software business or a services company. Report SaaS revenue and professional services revenue separately to show the true margin profile.
How do you calculate MRR churn rate?
Gross MRR churn = (Churned MRR + Contraction MRR) / Starting MRR × 100. Net MRR churn = (Churned MRR + Contraction MRR − Expansion MRR) / Starting MRR × 100. Net churn can be negative if expansion exceeds losses — that's the goal. For B2B SaaS at Series A, VCs want gross monthly revenue churn below 2% and logo churn below 5%.
What's the difference between logo churn and revenue churn?
Logo churn counts customers lost as a percentage of total customers — each customer counts equally regardless of what they pay. Revenue churn measures MRR lost from cancellations and downgrades as a percentage of starting MRR. A company might have 7% logo churn (small accounts leaving) but only 1.5% revenue churn (big accounts staying). VCs need both: logo churn reveals product-market fit breadth, revenue churn shows financial impact.
What is the SaaS Magic Number and why does it matter?
The Magic Number = net new ARR (this quarter) / S&M spend (previous quarter). It measures go-to-market efficiency. Above 0.75 means your sales engine is working and you should invest more. Between 0.5 and 0.75 means it's working but needs optimisation. Below 0.5 means something in the funnel is broken. VCs use it to determine whether pouring capital into your GTM machine will produce proportional growth.
How should I present SaaS metrics to VCs during Series A?
Build a single-page metrics dashboard showing: MRR/ARR with 12-month waterfall, LTV:CAC, CAC payback, monthly churn (logo and revenue), NDR, gross margin, burn rate/runway, Rule of 40, and Magic Number. For each metric, show the current value, the 6-month trend, and whether it meets Series A benchmarks. Supplement with a cohort retention chart. Consistency in calculation methodology is critical — VCs will immediately notice if numbers don't reconcile across your deck, model, and data room.