The Metrics That Actually Matter for PE Value Creation
PE-Grade KPIs That Actually Drive Value Benchmarks, why they matter, and the right thresholds for SaaS vs. Professional Services
Most teams track too many numbers and not enough truth. The right KPIs tell you three things: are we winning, is it efficient, and will it last. Below is a simple playbook you can use across SaaS and Professional Services. I explain what each KPI means, why it matters, and what ”good” looks like for each model. I also show my reasoning so you can tune the targets for your stage.
1) Revenue quality: keep what you win
SaaS: Net Dollar Retention (NDR) and Gross Dollar Retention (GDR)
• What it is: GDR is how much revenue you keep from existing customers before upsells. NDR adds expansions and subtracts churn and downgrades.
• Why it matters: NDR shows if your product gets more valuable over time. If NDR is strong, you can spend more to acquire customers and still grow.
• Benchmarks and targets: In recent private-SaaS data, the median NDR is ~101% and GDR ~90%. Top quartile NDR is ~109%. Aim for NDR ≥105% at
minimum and push 110–120% if you sell midmarket or enterprise.
• Reasoning: At 105% NDR, your base grows without new logos. At 110–120%, expansion is doing real work, which lowers the pressure on paid acquisition.
Professional Services: Repeat revenue and client retention
• What it is: Share of revenue from existing clients and year-over-year client retention.
• Why it matters: Repeat work keeps delivery teams utilized and lowers selling cost.
• Benchmarks and targets: Use utilization and project margin (below) as your hard guardrails. Track repeat revenue as a leading signal that those will hold.
2) Growth efficiency: win smart, not just fast
SaaS: CAC Payback
• What it is: Months to earn back your cost to acquire a customer.
• Why it matters: It sets how fast you can grow without starving cash.
• Benchmarks and targets: Private-SaaS median CAC payback is ~20 months. Top quartile is ~14 months. Push to ≤18 months as a working goal, and 12–15
months if you sell to SMB/mid-market.
• Reasoning: At 18 months, each dollar spent comes back within a planning cycle. Below 15 months, you can scale spend with lower risk.
SaaS: Magic Number
• What it is: Sales efficiency. New ARR from last quarter’s S&M spend, annualized.
• Why it matters: It shows if go-to-market dollars are turning into durable ARR.
• Benchmarks and targets: Median is ~0.7 and top quartile ~1.0. Growing efficiently usually means 0.75–1.0. Under 0.5 means your GTM needs work.
• Reasoning: At 1.0, each dollar in S&M produces a dollar of ARR per year, which supports faster scale without ballooning burn.
SaaS: Burn Multiple
• What it is: Net cash burned divided by net new ARR.
• Why it matters: It is the cleanest way to see if growth is capital efficient.
• Benchmarks and targets: <1.0 is excellent, 1–2 good, >2 needs work. Improve it by raising gross margin, tightening CAC, and lifting expansion.
• Reasoning: If Burn Multiple is 1.0, every $1 of burn adds $1 of ARR. Above 2.0, you are paying too much for growth and will face runway and valuation
pressure.
Professional Services: Bid-to-win and sales cycle
• What it is: Percent of proposals won and days from proposal to close.
• Why it matters: They drive revenue predictability and keep utilization steady.
• Targets: Win rate >40% on well-qualified bids and cycle times that fit your delivery lead times so you do not idle teams.
3) Unit economics: profit on what you sell
SaaS: Gross Margin
• What it is: Revenue minus COGS as a percent of revenue.
• Why it matters: It caps how efficient you can ever be. Low margin means you need very high growth to justify spend.
• Benchmarks and targets: Private-SaaS median gross margin ~72%, top quartile ~81%. Push to ≥75% for infrastructure-light products, ≥65–70% if your
product has heavy support or data costs.
• Reasoning: Each 5 points of gross margin improves your Burn Multiple and shortens CAC payback.
Professional Services: Project Margin
• What it is: Project revenue minus direct delivery cost, as a percent of revenue.
• Why it matters: It funds overhead and profit. If project margin is weak, volume will not fix it.
• Benchmarks and targets: Industry commentary shows average project margin near ~35%, while top performers get >50%. Set a floor at 40–45% and design
offers to hit 50%+ on repeatable work.
• Reasoning: At 50% project margin and 75–80% utilization, EBITDA can reach double digits without price hikes.
4) Operating discipline: make work repeatable
Professional Services: Billable Utilization
• What it is: Percent of time delivery staff spend on billable work.
• Why it matters: It is the heartbeat of services profit.
• Benchmarks and targets: Recent SPI-linked summaries show ~69% achieved across firms. Top performers aim for ~80% for billable roles. Build plans at 75–
80% depending on mix of seniority and R&D time.
• Reasoning: Every 5 points of utilization can move EBITDA by several points if project margin holds.
SaaS and Services: Rule of 40
• What it is: Growth rate plus profit margin.
• Why it matters: Investors use it to judge balance between speed and efficiency.
• Targets: ≥40% is the classic bar. For slower growth markets or late-stage firms, you can trade more margin for less growth and still meet or beat it.
• Reasoning: If you grow 25% with 20% EBITDA, you score 45. That is attractive in most markets because cash generation supports scale and M&A.
5) Cash conversion: turn revenue into dollars in the bank
Professional Services and Enterprise SaaS: DSO (Days Sales Outstanding)
• What it is: Average days to collect after you invoice.
• Why it matters: Cash pays payroll. High DSO kills working capital and forces debt or dilution.
• Benchmarks and targets: Summaries of SPI benchmarks point to top firms at ~30–45 days and many averages closer to 50–60 days. Target ≤45 days, and
push strategic accounts to net-30 with progress billing on larger projects.
• Reasoning: Cutting DSO from 60 to 40 days adds almost ⅔ of a month of revenue to cash on hand, which often funds growth withoutnnew capital.
How to pick the right thresholds for your business
Stage and motion matter.
• Early/mid-market SaaS: You can accept CAC payback ~15–18 months while you push NDR above 105%. As gross margin improves and
retention stabilizes, drive payback lower.
• Enterprise SaaS: Sales cycles are longer, so aim for Magic Number ~0.7–1.0, NDR 110–120%, and gross margin above 70% to keep burn in
check.
• Professional Services: Lock utilization 75–80%, project margin 45–50%+, and DSO ≤45 days. Those three together protect EBITDA
even when demand softens.
Reasoning framework you can use tomorrow:
Start with durability. Set targets for NDR (SaaS) or repeat revenue and utilization (services). If you don’t keep what you win, nothing else saves you.
Tune efficiency next. Push CAC payback and Burn Multiple into the healthy zones for your model. This tells you how fast you can responsibly scale.
Lock margins. Raise gross margin (SaaS) or project margin (services) before you add headcount. Margins amplify every later dollar of growth.
Protect cash. DSO is your shock absorber. Shorten it and you buy yourself growth options.
Balance it. Check your Rule of 40 quarterly. It keeps leadership honest about speed versus sustainability.
Quick reference: good, better, best
SaaS
• NDR: 105% good, 110% better, 120% best.
• CAC Payback: ≤18 mo good, 12–15 mo better, <12 mo best.
• Magic Number: 0.75 good, 0.9 better, 1.0 best.
• Gross Margin: 70–75% good, 75–80% better, 80%+ best.
• Burn Multiple: 1–2 good, <1 best.
• Rule of 40: ≥40% passes; higher is better.
Professional Services
• Billable Utilization (delivery roles): 72–75% good, 75–80% better, 80% best.
• Project Margin: 40–45% good, 45–50% better, 50%+ best.
• DSO: ≤45 days good, 35–40 days better, <35 days best.
• Rule of 40 (growth + EBITDA): Aim to meet or beat 40%.
The Bottom Line
The KPIs that matter are the ones directly tied to value: keep the customers you win, grow efficiently, price and deliver with healthy margins, and turn revenue into cash. Hitting the right thresholds in these areas builds compounding growth and gives boards and investors confidence that the business can scale and sustain returns.
