SaaS

B2B software billed on subscription. The economics turn on retention and expansion: gross margins run 70–85%, and net revenue retention above 100% means the install base grows without new logos. Go-to-market spans self-serve/PLG and sales-led motions; CAC payback and the Rule of 40 govern how aggressively you can spend to grow.

B2B SaaS is a recurring-revenue machine whose economics are governed by a single insight: if your net revenue retention clears 100%, existing customers grow the business even before a new logo signs. With gross margins typically running 70–85%, SaaS can reinvest heavily into sales and product — the question is always how fast, and the Rule of 40 (growth rate plus profit margin) is the investor shorthand for whether that reinvestment pace is disciplined.

The Retention-First Growth Loop

The engine starts with activation. A new account that never reaches its aha moment will churn inside the first quarter regardless of contract length, so activation rate is the earliest leading indicator of everything downstream. From there, gross revenue retention tells you whether the base is leaking, and net revenue retention tells you whether expansion from upsell and seat growth is outrunning that leak. An NRR above 120% means the installed base compounds on its own — a rare and durable property.

Spend Efficiency

On the go-to-market side, CAC payback (months to recover customer-acquisition cost from gross margin) anchors spend decisions. Benchmarks vary by ACV band, but payback periods beyond 18–24 months in a product-led motion, or 24–30 months in an enterprise motion, start to strain balance sheets. The magic number operationalizes this at the portfolio level: net new ARR generated per dollar of sales-and-marketing spend. Together these metrics tell you whether to accelerate or throttle the growth engine — the core judgment call in SaaS capital allocation.