SaaS Knowledge 5 — Questions and Answers
Question 1: What is 'net revenue retention' (NRR) and why do investors prioritize it?
- Total revenue minus refunds; shows billing accuracy
- Revenue retained from existing customers including expansions and minus churn; shows organic growth potential (Correct answer)
- New MRR divided by total MRR; shows new-customer dependency
- Gross revenue minus COGS; shows margin health
Correct answer: Revenue retained from existing customers including expansions and minus churn; shows organic growth potential
NRR above 100% means existing customers generate more revenue over time, allowing a SaaS company to grow even without acquiring new customers.
Question 2: Which compliance framework is most commonly required for SaaS companies handling US healthcare data?
- PCI DSS
- SOC 2 Type II
- HIPAA (Correct answer)
- ISO 27001
Correct answer: HIPAA
HIPAA (Health Insurance Portability and Accountability Act) governs the handling of protected health information (PHI) and applies to SaaS platforms used in healthcare.
Question 3: What is a 'champion' in enterprise SaaS sales terminology?
- The executive who signs the contract
- An internal advocate at the prospect company who drives adoption of your product (Correct answer)
- The top-performing sales rep on the vendor's team
- A power user who creates how-to content for other customers
Correct answer: An internal advocate at the prospect company who drives adoption of your product
A champion is an internal stakeholder at the buyer's company who believes in your solution and actively promotes it internally to get approval and drive the deal.
Question 4: What does 'churn prediction' modeling help SaaS companies do?
- Forecast next quarter's new customer acquisitions
- Identify at-risk customers before they cancel so teams can intervene (Correct answer)
- Determine the optimal pricing for each customer segment
- Automate billing recovery for failed payments
Correct answer: Identify at-risk customers before they cancel so teams can intervene
Churn prediction models analyze usage signals, support tickets, and engagement data to flag customers likely to cancel, allowing proactive retention outreach.
Question 5: In SaaS, what is 'dunning' referring to?
- Downgrading customers who exceed usage limits
- Automated communications and retries to recover failed subscription payments (Correct answer)
- Sending renewal reminders 90 days before contract expiration
- Notifying customers of upcoming price increases
Correct answer: Automated communications and retries to recover failed subscription payments
Dunning is the process of automatically retrying failed charges and sending escalating email reminders to recover involuntary churn from payment failures.
Question 6: What is the main advantage of a 'usage-based pricing' model for customers compared to flat-rate subscriptions?
- Predictable monthly costs regardless of usage
- Costs align directly with the value received, so low-use months cost less (Correct answer)
- Customers get unlimited access to all features
- Annual billing discounts are larger than flat-rate plans
Correct answer: Costs align directly with the value received, so low-use months cost less
Usage-based pricing lowers the barrier to entry and feels fair to customers because they pay proportionally to what they actually use rather than a fixed fee.
Question 7: What is 'API-first' design in SaaS product development?
- Building the user interface before the backend logic
- Designing the API as the primary product layer so all functionality is accessible programmatically (Correct answer)
- Prioritizing mobile API clients over web clients
- Using third-party APIs instead of building internal services
Correct answer: Designing the API as the primary product layer so all functionality is accessible programmatically
API-first means all features are available via API before (or alongside) the UI, enabling integrations, automation, and third-party development on top of the platform.
SaaS Knowledge 5
What is 'net revenue retention' (NRR) and why do investors prioritize it?