MRR, ARR and other SaaS metrics investors look at
Definitions, calculation and interpretation of monthly recurring revenue (MRR), annual recurring revenue (ARR), net revenue retention, churn and growth metrics.
By Editorial Team
Subscription software (SaaS) businesses are judged by different metrics than traditional companies. These metrics are needed both to run the company and to explain your position to investors. For model basics, see the SaaS business model guide.
MRR and ARR
- MRR (monthly recurring revenue): Regular revenue expected each month from active subscriptions. One-off fees are excluded.
- ARR (annual recurring revenue): MRR × 12.
*Example:* If 200 customers pay 50 a month, MRR = 10,000 and ARR = 120,000.
Components of MRR
- New MRR: Revenue from new customers
- Expansion MRR: Existing customers upgrading or adding seats
- Contraction MRR: Existing customers downgrading
- Churned MRR: Revenue from cancelled customers
Net new MRR = New + Expansion − Contraction − Churn
Customer and revenue churn
- Customer churn: Share of customers cancelling in a period.
- Revenue churn: Lost MRR as a share of starting MRR.
For ways to reduce it, see our churn guide.
Net revenue retention (NRR)
The revenue of an existing customer cohort after 12 months versus the start. Above 100 means expansion outweighs losses so existing customers grow revenue, a strong signal.
Growth rate
Monthly MRR growth can be 10–20% early on and naturally slows as the company grows. Investors look at sustainability and source of growth as well as the rate.
Other key metrics
- CAC and LTV: Detailed in our CAC and LTV guide.
- Gross margin: What remains after infrastructure and support costs.
- Activation and retention: How quickly users see the product's value.
- Cash and runway: See the financial model guide.
Choosing the right metrics
Instead of tracking everything, pick 3–5 metrics for your stage. At product stage, activation and retention; at growth stage, MRR growth, CAC and NRR. See the North Star metric.
Common mistakes
- Adding one-off revenue to MRR
- Ignoring discounts and refunds
- Not splitting annual payments across the right months
- Tracking flashy but non-actionable metrics, such as total sign-ups
This guide is for general information only and is not legal, financial or investment advice. Check official sources and consult professionals for current terms.
