In a tech M&A process, customer retention is a clear signal for buyers to assess risk, potential growth, and product-market fit. They want to know if customers stay and if the underlying revenue base is solid.
In this context, metrics like Net Revenue Retention (NRR), Gross Revenue Retention (GRR), and churn give the clearest view into those dynamics and may directly impact how a business is valued.
For founders preparing for a sale, improving retention metrics can help strengthen the valuation narrative because it shows consistency, supports a higher multiple, and builds leverage in the deal negotiation. Just as importantly, it shows a disciplined connection between ops and long-term financial outcomes.
This article outlines 4 SaaS retention strategies with real company examples and how to position them for maximum impact in a sale process.
Why retention directly impacts your exit multiple
Strong retention metrics show that after users try your SaaS product, they continue to get enough value to renew, expand, and even advocate for it over time. For buyers, this is a sign of long-term viability.
"I know all the major growth investors heavily scrutinize retention as part of their investment thesis. In every single earnings call for publicly traded SaaS companies, there are questions about dollar-based net retention, or whatever terminology people use [such as net revenue retention or net retention rate]," said former Gainsight CEO, Nick Mehta, in an interview with McKinsey.
"And then in private equity, every PE sponsor is using it as a big part of their diligence, trying to understand not just the high-level metrics, but the cohorts, and what’s driving them all throughout the board."
5 retention metrics that matter in SaaS M&A
To understand why retention matters so much in M&A, it helps to break down what different metrics actually measure:
- Net revenue retention (NRR) goes further, incorporating expansion revenue from upsells and cross-sells, offset by churn. An NRR above 100% signals durable, compounding growth, and in many cases, it is associated with premium multiples.
- Gross revenue retention (GRR). Measures the recurring revenue retained from existing customers over a period, usually a year, excluding revenue from upsells or expansions like cross-sells and upgrades.
- Customer retention rate captures the percentage of customers that remain over a given period. It’s a baseline indicator of satisfaction.
- Customer lifetime value (CLV) measures the projected revenue from a customer across their entire relationship with the business, a proxy for predictability and scalability.
- Churn rate, the inverse of retention, quantifies how much revenue or how many customers are lost over time. Buyers often stress-test churn to see whether growth is masking fragility.
Why buyers pay more for retention
In SaaS M&A, customer retention is an indicator of business resilience. Although having a strong customer retention rate does not ensure a higher multiple on its own, it can strengthen the investment case by reducing uncertainty and improving visibility into future performance.
What buyers are assessing is the stability of the revenue base and whether growth can be sustained without disproportionate reliance on new customer acquisition. At its core, retention signals customer loyalty and product relevance.
A 2021 McKinsey analysis of 40 public B2B SaaS companies found that those with net revenue retention (NRR) of 120 percent or higher were typically valued more highly, with a median EV/revenue multiple of about 21x compared with roughly 9x for companies below that threshold.
Customer retention strategies: 4 examples from successful SaaS companies
1. Improve onboarding to build long-term retention
A smooth onboarding process may reduce early drop-off, accelerate time-to-value, and build the foundation for loyalty.
Example: Dropbox
Dropbox CEO has publicly emphasized the role of onboarding improvements in driving customer engagement. Recently, executive Drew Houston noted that faster activation and setup improved rates by 5% and 10%, respectively, while also contributing to a 100% increase in desktop downloads. While not the only factor in retention, these changes illustrate how targeted onboarding initiatives can strengthen adoption and lay the groundwork for long-term customer value.
2. Offer customer education and foster a community
Empowering customers with knowledge and a sense of belonging makes them more invested in the product. Companies that build a strong community around their platform can see a significant boost in retention.
Example: Hubspot
HubSpot has highlighted the role of customer education through its Academy program. According to Courtney Sembler, Senior Director of HubSpot Academy, certified users showed a 13% increase in customer revenue retention compared with non-certified users. This suggests that structured education programs can contribute to stronger engagement and retention outcomes.
3. Leverage proactive customer success
Customer success functions are evolving from reactive support to proactive engagement. By anticipating issues before they arise and guiding customers toward greater value, SaaS companies can strengthen loyalty and reduce churn risk.
Example: Salesforce
Salesforce research shows that service quality is a key retention factor. In its State of the Connected Customer report, 88% of customers said they were more likely to repurchase when companies met expectations for fast, high-quality support.
According to Bain & Company, "leading firms are developing a clear product and customer journey blueprint, better defining and coordinating post-sales roles, and investing in AI-enabled self-service tools."
4. Foster product-led growth through continuous improvement
Product-led growth (PLG) models rely on the product itself as the main driver of adoption, expansion, and retention. By continuously improving usability and functionality, SaaS companies can encourage existing customers to deepen usage and expand accounts over time.
Example: Figma
Figma has been cited across multiple industry reports and news outlets for its strong PLG-driven retention performance. The company reported a net dollar retention (NDR) rate of 132%, with analysts at Reuters, The Motley Fool, and other outlets noting that existing customers consistently expanded their usage and spending over time. While NDR alone is not the sole indicator of success, Figma’s results illustrate how a well-executed PLG approach can support durable, expansion-led growth.
How to link retention strategies to financial outcomes
Retention initiatives gain real weight in an M&A process when they are explicitly tied to valuation and diligence. Founders can strengthen their position with buyers by connecting operational progress to financial outcomes in many ways like:
Benchmark retention against SaaS peers
Start by comparing net revenue retention (NRR), gross revenue retention (GRR), and churn rates with those of public SaaS companies. Benchmarks make it easier for buyers to calibrate performance. Where a company outperforms, founders can frame that gap as justification for a valuation premium.
Package retention metrics for buyer diligence
Buyers may expect segmented analysis of retention, for example, by cohort, customer size, geography, and product line. Presenting both GRR (downside protection) and NRR (upside potential) gives investors a balanced view of revenue durability. This level of transparency can also address diligence questions and reinforce the credibility of your business.
Tie retention strategies to your financial model
Show how specific initiatives, such as onboarding improvements, customer success programs, or upsell strategies, affect customer lifetime value (CLV), CAC payback period, and expansion revenue. Where possible, connect these operational levers to EBITDA margin improvement, reinforcing that retention is not just about growth but also about efficiency.
Highlight customer durability in your sales narrative
By positioning strong retention as proof of product-market fit and customer loyalty, founders can frame their business as more durable, less risky, and more deserving of a premium multiple.
Retention as a founder’s advantage
Retention is both a growth strategy and a valuation lever.
Founders who strengthen retention before going to market may have more influence in shaping the narrative buyers see in diligence.
By highlighting durable revenue streams, expansion-driven growth, and customer loyalty in exit materials, founders may strengthen their case for better terms and better multiples.
Working with an M&A advisor ensures these retention metrics aren’t buried, but framed as proof of long-term value, the kind of story that commands a premium. Contact an L40° advisor today.
