Revenue metrics

Once you’ve hit product-market fit, MRR becomes the metric your entire company orbits around. Revenue metrics tell you whether your business model works and how fast it’s compounding.

Monthly Recurring Revenue (MRR)

MRR is the predictable subscription revenue your business generates each month. It’s the cornerstone metric because every dollar of MRR you add this month compounds — it keeps contributing next month, and the month after that.

For annual plans: Annual contract value ÷ 12

MRR components

MRR alone is a number. The breakdown tells you the story.

• New MRR: Revenue from first-time customers
• Expansion MRR: Upgrades, add-ons, seat growth from existing customers
• Churned MRR: Revenue lost from customers who cancelled
• Contraction MRR: Revenue lost from downgrades

If your expansion MRR consistently exceeds churned + contraction MRR, your existing customer base is a growth engine on its own. That’s the hallmark of a great SaaS business.

Annual Recurring Revenue (ARR)

ARR is MRR projected over a year. Use it for board reporting, fundraising, and comparing yourself to other SaaS companies. Investors think in ARR; your ops team thinks in MRR. Both are useful.

Important caveat: ARR is forward-looking, not realized revenue. It assumes current MRR continues for 12 months. Track actual recognized revenue separately for financial management.

Switch to ARR as your primary reporting metric once you cross ~$1M ARR and have mostly annual contracts.

Average Revenue Per User (ARPU)

ARPU tells you how effectively you capture value through pricing. Rising ARPU usually means successful pricing optimization, feature packaging, or a shift toward higher-value customers. Declining ARPU might indicate competitive pressure or expansion into lower-value segments.

ARPU directly impacts unit economics: higher ARPU means you can afford to spend more on acquisition while maintaining healthy LTV:CAC ratios.

Strategies to increase ARPU

• Usage-based pricing components — charge more as customers get more value
• Feature packaging — bundle premium features to drive upgrades
• Seat expansion — price per user to grow with the customer’s team
• Value-based selling — communicate ROI to justify higher prices

Revenue growth rate

MoM growth is your operational pulse. YoY growth smooths out seasonality and is better for strategic comparisons. CMGR is the most honest growth metric for fundraising because it accounts for lumpy months.

Growth rate sustainability matters as much as the rate itself. A startup growing 25% MoM with a 5x burn multiple is in worse shape than one growing 12% MoM with a 1.5x burn multiple.

Expansion revenue

Expansion revenue from existing customers is the highest-quality growth you can get: lower sales cost, already onboarded, already proven value.

NRR above 100% means your existing customers generate more revenue over time even without new acquisition. This is one of the most important signals to investors and a strong predictor of long-term business value.

Expansion mechanisms

• Seat expansion — more users within the same account
• Plan upgrades — moving to higher pricing tiers
• Usage growth — increased consumption in usage-based models
• Cross-selling — additional products or modules

Revenue quality

Not all revenue is equal. Revenue concentration risk occurs when too few customers drive too much of your revenue.

Other quality signals: recurring vs one-time revenue, contracted vs month-to-month, organic vs discount-driven. A $10M ARR company with 95% recurring revenue and low concentration is worth far more than one with 60% recurring and a single customer representing 30% of revenue.