A few things come into play here. First, business processes that impact revenue disproportionately impact SaaS valuations because valuations are based on multiples of revenue. Lose one dollar of revenue, and your business loses ten dollars in value. Second, as mentioned above, payment approval ratios impact both new sales and renewals, so their impact on revenue is two-fold. Third, lost revenue decreases a business's growth rate, so the multiple of revenue used to value that business will go down. And finally, lost revenue compounds over time, so the impact on valuation increases as the situation remains unresolved.
Approval ratios can vary between 70% and 99%, although much of that difference is driven by the customer's geography, which has an impact on the incidence of fraud. In most cases, rejected payments might very well be fraudulent. However, if we hold constant for fraud and focus solely on falsely rejected payment requests, there can still be significant differences between payment processors. For example, Mercator Advisory Group recently compared payment processor authorization rates and identified an average difference of almost 3% between best-in-class providers and average providers.
A working example
For simplicity, let's assume a high-performing payment processor can deliver a two percentage point improvement in approval rates without noticeably increasing the incidence of fraud. (Plugin whatever percentage you think is appropriate.). As mentioned above, the two percentage point improvement in the approval ratio will increase total revenue and also increase the company's growth rate.
Let's work through an example where the starting MRR is $500,000, net revenue retention (exclusive of approval rates) is 100%, and the company books $25,000 per month in new MRR, growing at 2% per month.
If the approval ratio is 97% vs. 95%, the company will have $545,000 more in ARR after two years and will be growing at 47.5% vs. 45.3%, a 2.2 percentage point increase. These may seem like relatively modest changes; however, they are multiplicative and significantly impact valuation.