By Series B, the financial conversation changes. At Series A, investors will tolerate a model built on hopes and beliefs. By Series B, they expect numbers that hold up to scrutiny — and they have specific metrics they evaluate first.
Here are the seven that matter, the formulas to compute them, and the benchmarks investors are comparing you against.
The seven metrics that matter
1. ARR (Annual Recurring Revenue)
Formula: MRR × 12, or sum of annualized contract value across all active subscriptions.
Why investors care: ARR is the single most-quoted number in SaaS. But the question they’re really asking is: how clean is your ARR definition? Series B investors will ask whether you include one-time setup fees (you shouldn’t), professional services revenue (you shouldn’t), or non-recurring usage (you might, with disclosure).
Benchmark at Series B: typically $5M–$15M ARR depending on growth rate and market.
2. Net Dollar Retention (NDR)
Formula: (Starting ARR + expansion + upsell - churn - contraction) / Starting ARR, measured over a 12-month cohort.
Why investors care: NDR is the strongest indicator of product-market fit at Series B. It tells investors whether your existing customers are getting more or less valuable over time, independent of new sales.
Benchmark at Series B:
- 120%+ is best-in-class (top quartile)
- 105%–120% is good
- 90%–105% is acceptable for early Series B
- Below 90% is a red flag
3. Gross Revenue Retention (GRR)
Formula: (Starting ARR - churn - contraction) / Starting ARR. Note: GRR excludes expansion, so it’s always ≤100%.
Why investors care: NDR can mask churn problems if a few customers expand aggressively. GRR shows the underlying stickiness of the product.
Benchmark at Series B:
- 95%+ is excellent
- 90%–95% is healthy for SMB-focused SaaS
- Below 85% suggests product or segmentation issues
4. Magic Number
Formula: (Current quarter ARR - Prior quarter ARR) × 4 / Prior quarter sales & marketing spend.
Why investors care: Magic Number measures sales efficiency — for every dollar spent on sales and marketing, how much ARR does it generate annually? Above 1.0 means efficient growth; below 0.5 means you’re burning capital to acquire revenue that won’t justify the spend.
Benchmark at Series B:
- 1.0+ is excellent (consider accelerating spend)
- 0.5–1.0 is healthy (continue at current pace)
- Below 0.5 indicates pull back on spend until efficiency improves
5. Rule of 40
Formula: Annual growth rate (%) + EBITDA margin (%).
Why investors care: The Rule of 40 measures whether you’re trading growth for margin appropriately. A company growing 100% with -60% EBITDA margin scores 40 — the same as a company growing 20% with 20% margin. Both are acceptable.
Benchmark at Series B: 40+ is the goal. Top-tier SaaS companies are consistently above 50.
6. CAC Payback Period
Formula: CAC / (Gross margin × Monthly recurring revenue per customer), expressed in months.
Why investors care: CAC payback tells investors how long it takes to recoup the cost of acquiring a customer. The longer the payback, the more capital-intensive your growth model.
Benchmark at Series B:
- Under 12 months is excellent (capital-efficient)
- 12–18 months is normal for mid-market SaaS
- 18–24 months requires explanation
- Over 24 months is a red flag
7. Gross Margin
Formula: (Revenue - Cost of Revenue) / Revenue.
Why investors care: SaaS investors expect SaaS-like gross margins. Companies with infrastructure-heavy products or significant professional services drag get questioned on whether they’re really a software company.
Benchmark at Series B:
- 75%+ is healthy for pure SaaS
- 65%–75% is acceptable with explanation (infrastructure-heavy)
- Below 65% triggers questions about whether the business model scales
Three vanity metrics to stop reporting
Total customer count. Without ARR per customer, total customers tells investors nothing about quality. A company with 10,000 customers paying $100/year is in a worse position than one with 100 customers paying $10,000/year.
Pipeline value. Unweighted pipeline is meaningless. Investors will ask for weighted pipeline (probability-adjusted) or won’t bother looking. Don’t lead with pipeline value as a top-line metric.
Lifetime Value (LTV). LTV at Series B is mostly speculative — you don’t have enough data to compute it reliably. Report NDR and GRR instead, which use actual data. Save LTV for Series C+ when you have meaningful cohort history.
How investors actually evaluate metrics
The mistake most founders make is reporting metrics in isolation. Investors look for internal consistency. If your NDR is 130% but your growth rate is 40%, something is wrong — either NDR is overstated or you’re losing more new logos than you’re admitting. If your gross margin is 85% but your CAC payback is 30 months, the unit economics break down.
What investors are really doing: triangulating. They look at three or four metrics together and ask whether the story is self-consistent. A model with perfect-looking metrics that don’t tie together gets more scrutiny, not less.
The right time to clean up these metrics is before you start a fundraise — not three weeks in when an investor’s analyst is picking apart your data room. We work with venture-backed startups to get their financial reporting investor-ready before they go to market.