Getting your MRR and ARR right is critical—it’s not just about revenue reporting; it drives business decisions.

One thing that is very important in the SaaS space is to measure the company’s key SaaS metrics. The key SAAS metrics involve accurately measuring MRR/ARR, which ensures revenue is recorded correctly by month.

Here’s a structured way to analyse your SaaS metrics:

Metrics Critical for SaaS Reporting – Glossary

These metrics measure the recurring revenue and financial stability of your SaaS business.

• Monthly Recurring Revenue (MRR): The predictable revenue a company expects to receive on a monthly basis.
• Annual Recurring Revenue (ARR): The predictable annual revenue from subscriptions.
• Customer Lifetime Value (CLV or LTV): The total revenue a customer is expected to generate over their entire relationship with the company.
• Customer Acquisition Cost (CAC): The cost incurred to acquire a new customer.
• CAC Payback Period: The time it takes to recoup the cost of acquiring a customer.
• Gross Margin: The profit a company makes from its core service, after deducting direct costs.

These metrics focus on the customer’s experience, retention, and loyalty.

• Churn Rate: The rate at which customers stop using the service.
• Customer Retention Rate: The inverse of churn, measuring how many customers are kept over a period.
• Net Promoter Score (NPS): A measure of customer satisfaction and loyalty.
• Activation Rate: The percentage of users who complete a key action within the software, indicating they are getting value from the product.
• Customer Engagement Score: A metric to measure how deeply users are interacting with the product.

These metrics indicate how users are engaging with the product and how the business is growing.

• Active Users (Daily, Weekly, Monthly): The number of users actively using the product within a given timeframe.
• Expansion MRR: Revenue from existing customers through upgrades or additional services.
• Net Revenue Retention (NRR): Measures the overall revenue retained and generated from a cohort of existing customers, considering expansion and contraction.
• Lead Velocity Rate: The rate at which qualified leads are growing over time.
• Conversion Rate: The rate at which visitors or leads are converted into paying customers.

How to Get your MRR and ARR Right

• Definition: The predictable revenue your SaaS business earns each month from active subscriptions.
• Why it matters: It shows month-to-month revenue performance and helps forecast cash flow.
• How to calculate:
  • Sum the monthly subscription value of all active customers.
  • Include upgrades/downgrades.
  • Exclude one-off charges (setup fees, add-ons outside subscription).

Example:
100 customers paying £50/month → MRR = £5,000
5 customers upgrade to £100 → new MRR = £5,250

Tip: Track MRR by cohort (new, expansion, churn) to understand growth dynamics.

• Definition: The annualised version of MRR. It’s simply MRR × 12 (assuming subscription length is monthly).
• Why it matters: Investors and leadership use ARR to assess long-term business health.

Example:
MRR = £5,000 → ARR = £60,000

If you have annual subscriptions, include their equivalent monthly MRR before annualising, so ARR is consistent.

• Churn: Lost customers reduce MRR/ARR—tracking this helps forecast retention.
• Expansion revenue: Upgrades and cross-sells increase MRR/ARR—tracking separately helps identify growth.
• Deferred revenue: Recognise revenue in the month it’s earned, not necessarily the month it’s billed. This ensures accuracy in reporting.

• Investors, boards, and management rely on clean, predictable numbers.
• Miscalculating MRR/ARR can mislead growth analysis, undervalue retention, or overstate financial health.
• Accurate SaaS metrics enable forecasting, budgeting, and strategic decisions such as pricing changes or sales investments.

Get your concise, formula-based SaaS metrics framework

• Start with your MRR at the beginning of the month.
• Track New MRR, Expansion, and Churn separately.
• Apply the formulas to get Net New MRR and updated MRR.
• Multiply MRR × 12 to get ARR.
• Track Churn rate monthly to monitor retention health.

NB: Scroll right to see the full table

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