# Overlay: Software / SaaS

Use for subscription software, usage software, or hybrid recurring-revenue businesses where retention, expansion, margin, and pipeline quality drive value.

## Table of contents
1. Decision lens
2. Driver tree
3. Mandatory denominators
4. Typical gating items
5. Kill criteria examples
6. Evidence asks
7. Owner mapping
8. External triangulation when thin
9. Red flags

## Decision lens
- Is recurring revenue actually recurring under a defensible definition?
- Are retention and expansion durable by segment and cohort?
- Are gross margins and CAC/payback real after correct cost treatment?
- Does pipeline quality support the forecast?

## Driver tree
Default equation:

`starting ARR + new ARR + expansion - contraction - churn`

Test that against revenue, billings, deferred revenue, cash, and gross profit.

## Mandatory denominators
- ARR and MRR definitions
- customer-level ARR bridge
- GRR and NRR by segment and cohort
- logo churn and ARR churn
- price vs volume vs usage expansion
- gross margin by product line and segment
- CAC and payback with included cost buckets
- weighted pipeline coverage and forecast accuracy

## Typical gating items
- ARR, NRR, or payback definitions are loose or non-standard.
- Retention math is not reproducible from the customer-level bridge.
- Gross margin is overstated because support, implementation, or third-party costs are excluded from COGS.
- Forecast depends on weak or unweighted pipeline.
- Revenue quality is weaker than the headline because services or one-time usage are mixed into recurring claims.

## Kill criteria examples
- `hard pass`: retention or ARR quality is materially worse than implied by the case.
- `price reset`: normalized gross margin or CAC/payback is materially weaker than represented.
- `pause`: pipeline quality or forecast accuracy does not support the near-term plan.

## Evidence asks
- billing system subscription export
- customer-level ARR bridge for 8+ quarters
- deferred revenue rollforward
- revenue by line and COGS by line
- CRM opportunity history and weekly snapshots
- product usage export tied to customer IDs
- addback schedule and monthly P&L bridge

## Owner mapping
- CFO or FP&A
- RevOps or customer analytics
- Sales Ops or GTM lead
- customer success lead
- CTO, product lead, or security lead

## External triangulation when thin
- market sizing only as secondary context
- competitive claims via vendor sites, review platforms, and analyst sources with cautious confidence
- regulatory or security claims via official certifications or filing-style disclosures

## Red flags
- ARR is really LTM recurring revenue.
- NRR excludes churned customers or reactivation treatment is unclear.
- CAC uses revenue instead of gross profit.
- Win rate excludes no-decision deals.