Five years ago, software buyers prioritised company growth. Today, however, their primary concern is revenue retention.

McKinsey’s analysis of more than 100 B2B software companies found the top valuation quartile trading at nearly 5 times the revenue multiple of the bottom quartile, separated by just 15 points of net revenue retention, 113% against 98%. Software Equity Group data shows the median software deal pricing at 4 times trailing revenue in the second quarter of 2026, down from 4.2 times a year earlier.

A major European software investor recently stated that it requires at least 90% gross retention and prefers net retention above 100%, as this illustrates a company’s ability to not only keep its current customers but also to increase their individual spend. This is important to the investor as they may be comfortable with low or no profitability at acquisition, as profitability can be improved post-acquisition, but a declining customer base cannot be easily addressed.

In February, we discussed AI, valuations, and the widening range of outcomes in SaaS. Retention is the first area where this divergence appears, as buyers now view it as the strongest indicator of a product’s defensibility. When two companies grow at the same rate, retention becomes the main factor driving a more competitive sale process. Reducing churn is also more cost-effective than acquiring new customers and has a greater impact on valuation multiples. That is why retention is now the first question software buyers ask.

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