SaaS M&A Glossary
Plain-English definitions for every term you'll encounter when buying, selling, or auditing a SaaS business.
ARR — Annual Recurring Revenue
The annualised value of all active subscription contracts. ARR = MRR × 12. It excludes one-time payments and professional services. Buyers use ARR as the primary top-line metric when pricing a SaaS acquisition.
MRR — Monthly Recurring Revenue
The predictable, normalised revenue a SaaS business earns every month from active subscriptions. New MRR, expansion MRR, contraction MRR, and churned MRR are the four components used to reconcile monthly movements.
NRR — Net Revenue Retention
How much recurring revenue is retained from an existing cohort of customers after 12 months, including expansions and contractions. NRR > 100 % means the business grows revenue even without acquiring new customers — the single strongest signal of product-market fit.
Churn Rate
The percentage of customers (or revenue) lost in a given period. Logo churn measures customer count; revenue churn measures MRR. A B2B SaaS with annual contracts should target < 5 % annual logo churn; a self-serve product under 10 %.
SDE — Seller's Discretionary Earnings
Cash profit available to a single full-time owner-operator after adding back the owner's salary, personal expenses run through the business, depreciation, and one-time items. The primary valuation base for SaaS businesses under ~$5 M ARR.
EBITDA
Earnings before interest, taxes, depreciation, and amortisation. Used as the profit base for larger, institutional-grade SaaS transactions where a buyer plans to install professional management rather than run the business personally.
SaaS Multiple
The revenue or earnings multiple applied to value a SaaS business. ARR multiples typically range from 2 × – 8 × ARR for bootstrapped businesses and 10 × – 20 × for high-growth VC-backed ones. SDE multiples typically range from 3 × – 6 ×. Growth rate, NRR, churn, and margin drive where in the range a business lands.
TTM Revenue — Trailing Twelve Months
The sum of revenue over the most recent 12-month period. TTM is the standard lookback for SaaS acquisitions because it captures seasonal patterns and is forward-looking enough to exclude historical noise.
CAC — Customer Acquisition Cost
The total sales and marketing spend required to acquire one new customer. Paired with LTV to determine whether the unit economics of growth are sustainable. CAC payback period (months to recover CAC from gross margin) is a common efficiency metric.
LTV — Lifetime Value
The total gross profit expected from a customer over their entire relationship with the business. LTV / CAC > 3× is a conventional threshold for a healthy SaaS growth engine.
Data Room
A secure, organised collection of business documents shared with prospective buyers during due diligence. Typically includes financial statements, customer contracts, MRR spreadsheets, cap table, technology documentation, and key employee agreements.
LOI — Letter of Intent
A non-binding document a buyer submits to outline the proposed deal terms: valuation, payment structure, exclusivity period, and high-level conditions. Signing an LOI typically triggers a 30–90 day exclusivity window for formal due diligence.
Earnout
A portion of the acquisition price contingent on the business hitting post-close performance targets (e.g. revenue milestones). Earnouts bridge valuation gaps between buyer and seller but introduce execution risk for the seller.
Due Diligence
The systematic investigation a buyer performs before closing an acquisition. For SaaS, this covers financial (revenue integrity, churn), technical (code quality, infrastructure), legal (contracts, IP ownership), and operational (team, processes, customer concentration) dimensions.
MRR Bridge
A month-by-month reconciliation showing how MRR moved from one period to the next, broken into new, expansion, contraction, and churn components. The clearest way to understand the true health of recurring revenue.
Customer Concentration
The degree to which revenue is dependent on a small number of customers. A single customer representing > 20 % of ARR is a significant risk flag — their departure alone could materially damage the business.
Plausibility Score
ProofCap's proprietary metric (0–100) that cross-references reported revenue figures against observed traffic and engagement signals to flag statistical inconsistencies. A score below 40 indicates a high likelihood of misrepresented data.
Verify the numbers behind the terms
ProofCap cross-references reported ARR, MRR, and churn against live billing platform and Google Analytics data to give you an independent Plausibility Score before you sign an LOI.
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