April 10 2026

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THE ECONOMICS OF SAAS ARE BEING REWRITTEN. WHAT DOES THIS MEAN?

SaaS 1.0 companies must lean into AI products for growth despite facing near-term margin and retention compression. AI gross margins will improve as inference costs decline and retention will be high if customers get durable value from repetitive AI and agentic work.

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VC EXPECTATIONS AT SEED AND SERIES A

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REVENUE GROWTH

AI Native is unlocking much larger TAMs and driving higher growth

AI-Native is replacing labour not previously addressed by SaaS which unlocks new category TAMs and growth rates.

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GROSS PROFIT MARGIN

Lower GP margins indicate usage, but inference costs falling fast

OpenAI GPT-4 costs dropped ~95% in 18 months. As inference costs fall, AI gross margins will converge toward SaaS.

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CAC PAYBACK

CAC Payback for AI is hard to measure

AI consumption based pricing makes CAC paybacks difficult to measure. Consumption is expected to increase ACVs over time so LTV becomes more important for AI Native SaaS.

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RETENTION

Retention and durability still fundamental

Retention to support revenue durability remains a fundamental investment criterion. AI sees high variance due to experimentation and consumption pricing models but companies are blending SaaS base contracts with AI consumption to protect recurring revenue and capture AI upside.

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ARR PER FTE & GP PER FTE

ARR and GP per FTE for AI native much higher than SaaS 1.0

AI native companies appear to be much more productive per FTE due to consumption pricing and use of AI software development, sales, marketing and customer support tools.

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