SaaS Business Plan: Metrics Investors Actually Care About

Why SaaS Business Plans Are Different

SaaS (Software as a Service) businesses operate on fundamentally different economics than traditional businesses. Revenue is recurring, not transactional. Growth comes from retention as much as acquisition. And the financial model depends on a handful of metrics that experienced investors can evaluate in minutes.

If you are raising a seed round, Series A, or even bootstrapping a SaaS startup, your business plan needs to speak the language of SaaS metrics fluently. Investors who evaluate SaaS companies see hundreds of pitches per year. They have pattern recognition for good and bad SaaS economics, and they will spot unrealistic assumptions instantly.

The Core SaaS Metrics

MRR and ARR: The Foundation

Monthly Recurring Revenue (MRR) is the predictable revenue your business generates each month from active subscriptions. Annual Recurring Revenue (ARR) is MRR multiplied by 12. These are the primary metrics investors use to evaluate SaaS company size and growth.

Break MRR into components:

• New MRR: Revenue from new customers acquired this month
• Expansion MRR: Additional revenue from existing customers upgrading or buying add-ons
• Churned MRR: Revenue lost from customers who canceled
• Net New MRR: New MRR + Expansion MRR - Churned MRR

Investors want to see Net New MRR growing month over month. Negative Net New MRR (you are losing more revenue than you are adding) is a red flag that requires immediate explanation.

Churn Rate: The Silent Killer

Churn is the percentage of customers or revenue you lose in a given period. There are two types:

• Customer churn (logo churn): Percentage of customers who cancel. For SMB-focused SaaS, 3-7% monthly churn is common. For enterprise SaaS, 0.5-1.5% monthly churn is expected
• Revenue churn (dollar churn): Percentage of MRR lost to cancellations and downgrades. This can be offset by expansion revenue
• Net revenue retention (NRR): The gold standard metric. NRR above 100% means you are growing revenue from existing customers even without new sales. Best-in-class SaaS companies achieve 110-130% NRR

A SaaS business with 5% monthly churn loses 46% of its customers within a year. Include your churn assumptions in your business plan and explain what drives them. If you do not yet have data, use industry benchmarks and explain your retention strategy.

CAC and CAC Payback Period

Customer Acquisition Cost (CAC) is total sales and marketing spend divided by number of new customers acquired. Include all costs: ad spend, sales salaries, marketing tools, content creation, events.

CAC Payback Period measures how many months it takes for a customer's gross margin contribution to repay the cost of acquiring them.

Formula: CAC / (ARPU x Gross Margin %)

Benchmarks:

• Excellent: Under 12 months
• Good: 12-18 months
• Concerning: 18-24 months
• Unsustainable: Over 24 months (unless you have very high NRR)

LTV:CAC Ratio

Lifetime Value (LTV) = ARPU x Gross Margin % x (1 / Monthly Churn Rate)

The LTV:CAC ratio tells investors whether your unit economics work:

• Below 1:1 -- You are losing money on every customer. Not sustainable
• 1:1 to 3:1 -- Marginally profitable. Concerning for most investors
• 3:1 to 5:1 -- Healthy and efficient. The sweet spot for most SaaS companies
• Above 5:1 -- Either very efficient or you are underinvesting in growth. Investors may push you to spend more aggressively

The Rule of 40: Growth + Profitability

The Rule of 40 states that a SaaS company's revenue growth rate plus its profit margin should exceed 40%. It is a benchmark used by growth-stage investors to evaluate the balance between growth and profitability.

Examples:

• Growing 60% with -20% profit margin = 40% (meets the rule)
• Growing 30% with 15% profit margin = 45% (exceeds the rule)
• Growing 20% with 10% profit margin = 30% (below the rule)

For pre-revenue or very early-stage companies, the Rule of 40 is less relevant, but including it in your projections shows investors you understand SaaS valuation frameworks. Show the year you expect to cross the Rule of 40 threshold.

Cohort Analysis: Proving Retention

A cohort analysis tracks groups of customers acquired in the same month and shows their revenue over time. It is the single most powerful way to demonstrate retention and expansion revenue patterns.

In your business plan, include a cohort table showing:

• Month 0: Number of customers acquired and MRR
• Months 1-12: Percentage of original MRR retained each month
• Expansion: Where cohort revenue exceeds the original amount (indicates upselling success)

If you are pre-launch, model projected cohort behavior based on comparable companies in your category. Be transparent about which numbers are actual and which are projected.

SaaS Financial Model Structure

Your financial model should be built on a monthly basis for at least 3 years. Key sections:

Revenue Model

• Starting MRR and growth assumptions (month-over-month growth rate)
• Pricing tiers and expected distribution of customers across tiers
• Expansion revenue assumptions (% of customers upgrading per month)
• Churn assumptions by tier (enterprise customers typically churn less)

Cost Structure

• Cost of revenue (COGS): Hosting (AWS/GCP/Azure), payment processing, customer support. SaaS gross margins should be 70-85%. Below 65% raises concerns about scalability
• Sales and marketing: Typically 30-50% of revenue in growth phase. Include headcount, ad spend, tools, content, and events
• Research and development: Engineering salaries, tools, and infrastructure. Typically 20-35% of revenue
• General and administrative: Office, legal, accounting, HR. Typically 10-20% of revenue

Key Assumptions to Document

• Month-over-month MRR growth rate (10-20% is ambitious, 5-10% is realistic for post-seed)
• Customer acquisition channels and CAC by channel
• Average deal size by customer segment
• Sales cycle length (SMB: 14-30 days, mid-market: 30-90 days, enterprise: 90-180 days)
• Hiring plan with start dates and fully loaded costs
• Infrastructure cost scaling (hosting costs typically scale sub-linearly with users)

What SaaS Investors Red-Flag in Business Plans

• No churn assumptions: Every SaaS business has churn. Omitting it suggests either naivety or dishonesty
• Assuming viral growth without evidence: "Users will invite their colleagues" is not a growth strategy without data showing it happens
• Gross margins below 60%: If your software has high infrastructure costs per customer, investors question whether it is truly SaaS or a services business disguised as software
• No competitive moat: What prevents a larger company from building your features? Network effects, data advantages, switching costs, and deep integrations are real moats. "We will outexecute them" is not
• Projecting enterprise sales with no enterprise sales experience: Enterprise deals require different sales motions, longer cycles, and procurement complexity. If your team has never sold to enterprises, your plan should start with SMB

A SaaS business plan that speaks the language of SaaS metrics immediately builds credibility with investors. BizPlanForge can help you generate a SaaS-specific financial model with MRR projections, churn modeling, and CAC payback calculations -- giving you a professional foundation to customize with your unique business assumptions.