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Recurring revenue metrics
These metrics describe how much predictable revenue your business generates and how it moves over time.
MRR movement — one month
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) measures the predictable subscription revenue your business generates every month. It serves as the foundation for nearly every SaaS financial metric.
Tracking MRR helps founders understand growth trends, forecast future revenue, and evaluate the impact of pricing, customer acquisition, and retention efforts.
MRR = Sum of all monthly subscription revenue
In our example company, 100 customers paying $200/month generate $20,000 in MRR.
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Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) represents recurring subscription revenue normalized over a twelve-month period. Companies with annual contracts often use ARR as their primary growth metric.
ARR provides investors and leadership teams with a long-term view of recurring business performance.
ARR = MRR × 12
By the end of the month our company reaches $25,000 MRR — that's $300,000 ARR.
Average Revenue Per Account (ARPA)
ARPA measures how much recurring revenue each customer account generates on average.
Monitoring ARPA helps identify pricing opportunities, customer segmentation trends, and expansion potential.
ARPA = MRR ÷ Number of Active Customers
$20,000 MRR ÷ 100 active customers = $200 ARPA.
Average Selling Price (ASP)
Average Selling Price represents the average contract value of newly acquired customers.
ASP is useful for evaluating sales performance, pricing strategy, and go-to-market effectiveness.
ASP = Total Contract Value of New Customers ÷ Number of New Customers
20 new customers signing $48,000 of new annual contracts → a $2,400 ASP.
New Business MRR
New Business MRR measures recurring revenue generated from brand-new customers during a specific period.
This metric helps founders evaluate marketing effectiveness and customer acquisition efforts.
20 new customers at $200/month add $4,000 of new business MRR this month.
Expansion MRR
Expansion MRR captures additional recurring revenue from existing customers through upgrades, seat increases, or cross-selling.
A healthy Expansion MRR indicates customers continue finding value in your product.
Upgrades and seat increases from existing customers add $3,000 of expansion MRR.
Contraction MRR
Contraction MRR measures revenue lost when existing customers downgrade their subscriptions or reduce usage.
Increasing contraction often signals pricing issues, product adoption challenges, or changing customer needs.
Downgrades from existing customers reduce MRR by $800 in contraction this month.
Churned MRR
Churned MRR represents recurring revenue lost from customers who completely cancel their subscriptions.
Reducing churn is typically one of the highest-impact initiatives for SaaS growth.
6 customers cancel their subscriptions, removing $1,200 of churned MRR.
Net New MRR
Net New MRR summarizes overall recurring revenue growth after accounting for gains and losses.
Positive Net New MRR indicates your recurring business is growing.
Net New MRR = New MRR + Expansion MRR − Contraction MRR − Churned MRR
$4,000 new + $3,000 expansion − $800 contraction − $1,200 churn = $5,000 net new MRR, taking the company from $20,000 to $25,000.
Churn & retention metrics
Retention metrics reveal how well you keep the revenue you have already won — often the highest-leverage area for sustainable growth.
Gross vs net revenue retention
Customer Churn Rate
Customer Churn Rate measures the percentage of customers who stop using your product during a specific period.
While growth often receives the most attention, customer retention is equally important for long-term success.
Customer Churn Rate = Lost Customers ÷ Customers at Start of Period × 100%
6 customers lost ÷ 100 customers at the start of the month = 6% customer churn.
Revenue Churn
Revenue Churn measures the percentage of recurring revenue lost from existing customers.
Unlike customer churn, revenue churn reflects the financial impact of cancellations and downgrades.
$1,200 churned + $800 contraction = $2,000 lost ÷ $20,000 starting MRR = 10% revenue churn.
Gross Revenue Retention (GRR)
Gross Revenue Retention measures how much recurring revenue you retain before considering expansion revenue.
GRR focuses purely on customer retention quality.
GRR = (Starting MRR − Churned MRR − Contraction MRR) ÷ Starting MRR × 100%
($20,000 − $1,200 churn − $800 contraction) ÷ $20,000 = 90% gross revenue retention.
Net Revenue Retention (NRR)
Net Revenue Retention measures how recurring revenue changes within your existing customer base after accounting for expansions, downgrades, and churn.
An NRR above 100% means expansion revenue more than offsets losses from churn and contractions, making it one of the strongest indicators of a healthy SaaS business.
Many of today's fastest-growing SaaS companies consistently maintain NRR above 100%.
NRR = (Starting MRR + Expansion MRR − Contraction MRR − Churned MRR) ÷ Starting MRR × 100%
($20,000 + $3,000 expansion − $800 − $1,200) ÷ $20,000 = 105% — expansion more than offsets every loss.
Unit economics
Unit economics tell you whether acquiring a customer is profitable — and how quickly that investment pays back.
LTV vs CAC
Customer Lifetime Value (LTV)
Lifetime Value estimates the total revenue a customer generates throughout their relationship with your business.
LTV helps determine sustainable acquisition budgets and long-term profitability.
A customer paying $200/month at 75% gross margin who stays ~40 months is worth about $6,000.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost measures the average amount spent to acquire a new paying customer.
CAC should always be evaluated alongside LTV and payback period.
CAC = Sales & Marketing Expenses ÷ New Customers Acquired
$40,000 in sales & marketing ÷ 20 new customers = $2,000 CAC.
LTV Ratio
The LTV Ratio compares customer lifetime value against acquisition costs.
Many SaaS businesses aim for a ratio around 3:1, balancing growth with profitability.
LTV Ratio = Lifetime Value ÷ Customer Acquisition Cost
$6,000 LTV ÷ $2,000 CAC = a 3:1 ratio — right around the healthy benchmark.
CAC Payback Period
The CAC Payback Period shows how long it takes to recover customer acquisition costs from recurring gross profit.
Shorter payback periods generally improve cash flow and capital efficiency.
$2,000 CAC ÷ $150 monthly gross profit per customer ≈ 13 months to recover the cost.
Growth efficiency & sales
These metrics measure how efficiently your go-to-market engine converts effort into durable recurring revenue.
Growth efficiency — gained vs lost
SaaS Quick Ratio
The SaaS Quick Ratio measures growth efficiency by comparing new and expansion revenue against lost revenue.
Higher values indicate healthier recurring revenue growth.
Quick Ratio = (New MRR + Expansion MRR) ÷ (Churned MRR + Contraction MRR)
($4,000 new + $3,000 expansion) ÷ ($1,200 churn + $800 contraction) = a Quick Ratio of 3.5.
Average Sales Cycle Length
Average Sales Cycle Length measures the time between first customer contact and closing a deal.
Tracking this metric helps improve forecasting accuracy and optimize sales performance.
If deals typically take 30 to 60 days from first contact to close, the average sales cycle is around 45 days.
Why these SaaS metrics matter
No single metric tells the full story of a SaaS business. Sustainable growth comes from understanding how acquisition, retention, expansion, and profitability work together.
Founders who regularly monitor these KPIs can:
- Make better strategic decisions.
- Improve pricing and packaging.
- Increase customer retention.
- Allocate marketing budgets more effectively.
- Forecast growth with greater confidence.
- Build healthier recurring revenue.