In the first of this two-part series on SaaS metrics, Antony Baker, Principal at Claret Capital Partners, and Charlotte Stephenson, Analyst, sat down with leading software investors and management teams from the Claret portfolio to explore how efficiency measures joined ARR growth and NRR at the top table of metrics in 2023.

In part 2, we delve into the sometimes opposing views management teams and investors have on metrics, and take a look at what the data really tells us. 

 #3: Not all “ARR” is ARR 

One of the biggest pitfalls in the reporting of metrics is the use of Contracted ARR. Contracted ARR is not live ARR and it is not revenue. If a business is not invoicing a customer and the customer is not paying, then it is not yet annual recurring revenue…  

“Companies need to be crisp on what they are – and they need to be very clear that whatever revenue they talk about correlates or guides to cash” (B2B software investor). 

Transactional based business models are often subject to being “reshaped into something it is thought investors like” (B2B software investor), when there is absolutely nothing wrong with transaction based models in the first place. If companies try to retrofit SaaS type models and metrics onto their business to reflect what is perceived as more valuable recurring revenues, then the P/L may be viewed through an inappropriate lens, and, yet worse, the revenues themselves can suffer. 

 #4: Pipeline is underrepresented 

Many of the ‘classic’ metrics (which are generally lagging indicators) do not bear any relationship to pipeline – “pipeline is much more interesting to management as a means of tracking performance SaaS CFO:

i) What is pipeline efficiency? (i.e. how many dollars are burned for each dollar of pipeline created?);

ii) What is pipeline cover? (i.e. “if we have a quarterly target of $100k new ARR then we expect going into that quarter to have at least $400k in the pipeline”;

iii) “When are renewals due and what are the historic conversion rates?”

Some management teams we spoke with were surprised that investors lacked any real or detailed interest in pipeline. Conversely some investors expressed that they were being presented with “consistently terrible” illustrations and poor examples of pipeline metrics.

 #5: What about the classics? 


Payback (generally looked at but not seen as critical amongst those we spoke with) identifies how long it takes to recoup customer acquisition costs (CAC) through the recurring revenue generated by that customer – the shorter the payback period the better.

Payback has a close relationship with customer type and churn – if churn is close to zero and NRR is strong then a company can afford a longer payback period. Therefore businesses with sticky, but long sales cycle enterprise customer bases, can possibly tolerate payback in 24-36 months, whilst SMB focussed companies should be targeting an absolute maximum of 24 months.  


Despite a great deal of popularity in years gone by, the amount of subjectivity and variability in calculating LTV/CAC means it was seen as one of the least relevant metrics with the investors and CFOs with whom we spoke, albeit marginally more relevant for later stage businesses: 

i) Low churn can materially impact the relevance of the calculation; 

ii) Gross margin is often missed in calculating LTV; 

iii) What is included in CAC, and for which time period, varies widely from company to company (and from investor to investor).  


Surprisingly GM was not widely referred to in our discussions but remains a critical measure of a SaaS business. It says a lot about a company’s ability to scale, and whilst there is a range based on business model, “pure B2B SaaS models are in the zone between 65%-85% as long as they are fully loaded (i.e. is this inclusive of the true overheads that are supporting revenues?” (B2B software investor).

 #6: Are metrics just for investors? 

“The tail should not be wagging the dog” – (SaaS CFO). 

ARR growth and NRR seem to be universally adopted as important metrics. However, whilst some companies expressed good alignment with their investors on how metrics help track performance and inform decision making, the suggestion that metrics are “just for investors, that would never be looked at otherwise, was made more than once. 

There is a view that overemphasis can lead management teams to run the business for the metrics, rather than use the markers to track and sense check performance.

“A lot are produced for other people – there are very few we actually use and make management decisions on. They can be interesting, but they are externally focused – as long as we are growing and generating the cash to cover the bills then they don’t really matter” (SaaS CFO). 

Others suggested caution on their use as “investors may say the same thing but not have a uniform agreement on the components of a metric – there is also a difference in measuring them prior to an equity or debt raise, rather than after, when investing for growth will clearly skew efficiency, and where increased expenditure will not instantly translate into revenues.” (SaaS CFO).  

 #7 Does the data agree?

Whilst not factoring in size or stage, in the 26 SaaS businesses Claret analysed complete data sets for in 2023, growth was around 9 percentage points lower in the last 12 months of data provided, versus the 12 months prior.   

NRR performance surprisingly had little correlation to year-over-year ARR growth. However, the top quartile NRR cohort had vastly improved EBITDA margins (-35%) across the last 12 months of data vs the bottom quartile (-116%). Naturally then the Rule of 40 performance was significantly improved in the businesses with stronger NRR.

So ARR growth and NRR were joined by efficiency measures as key SaaS metrics in 2023 – and the data suggests that NRR and Rule of 40 performance are closely correlated. Beyond these measures, there are widely differing views on the relevance of the many other SaaS metrics, and which are truly important in a business’ operations, versus which are purely for external users or investors.

Underpinning a number of the metrics – regardless of their relevance – is that care should be taken to report the truly live ARR as it is today. And when assessing near term ARR upside, management teams and investors alike may benefit from prioritising the analysis of pipeline metrics early on in their discussions. 

Thanks again to Andrew WhitingConor ScanlanDaniela RaffelJoe KnowlesMatthew TurkOmar Saadoun, and Nick Harber for sharing your valuable insights with us! 

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