Common seller tricks in SaaS
Sellers will lean on MRR or a multiple of a founder-adjusted profit, and skip logo churn, the quality of the revenue, and how much of the product walks out the door with the founder.
- Monthly recurring revenue that includes unpaid, cancelled, or heavily discounted accounts.
- A founder who is still the only engineer, salesperson, and support queue.
- One-time setup or services mixed into ‘recurring’ figures.
- Paid acquisition that only works while the founder runs ads, or that has already stopped working.
- SDE used as the headline when the company should be looked at on retention, gross margin, and growth quality.
Which numbers to verify
You want MRR or ARR, logo and dollar churn, net revenue retention, and a cohort view — not just a P&L. Reconcile card or invoice collections. Split new, expansion, and churned revenue. Recast the founder’s engineering and support time at a real cost. If two customers are a large share, model them leaving. Deferred revenue and annual prepayments are liabilities as well as cash.
Licensing and key-person risk
The company should actually own the IP, the accounts, and the domain. Open-source use, contractor agreements, and employee assignments should be clean. Security, privacy, and (for some buyers) SOC 2 or similar requests from customers can be a sales blocker. This is a corporate and IP diligence exercise, not just a bookkeeping one.
Equipment and condition
The stack, the cloud bill, and the third-party APIs are the plant. A cheap infrastructure bill can hide a single-region, single-engineer risk. Confirm who owns the code repository, the app-store listings, and the analytics. A product that only the founder can deploy is not transferable yet.
Seasonality and the calendar
SaaS is usually less seasonal than a shop, but education, retail, and tax-adjacent products have calendars. Annual contracts can bunch renewals in one month. Look at new logos and churn by month. A big logo that signed last December is not yet a pattern.
Customer concentration
Customer concentration is the obvious one. Channel or platform concentration (a single app marketplace, a single integration) is the quieter one. A founder’s personal network as the only sales motion is concentration too. All three belong in the questions.
Questions to ask before you make an offer
- Please provide MRR, new, expansion, and churned revenue by month for at least 24 months, reconciled to collections.
- What are logo churn and net revenue retention, and may I see a simple cohort view?
- What share of MRR sits with the largest five customers, and what are their contract terms and notice periods?
- How much of the code, support, and sales does the founder still handle, and what is a realistic replacement cost?
- Is the IP assigned to the company, including contractor work, and who controls the repositories and domains?
- What is the paid-acquisition picture, and what happens if current channels get more expensive?
- How is deferred revenue from annual plans recorded, and what service is still owed?
- What security, privacy, or uptime commitments exist, and have there been incidents?
- Why is SDE the right way to talk about this company, rather than retention and gross margin?
- After an LOI, may I have a technical diligence session and speak with your accountant?