SaaS Metrics Glossary

Revenue metrics describe the recurring income a subscription business generates and how that income moves month to month. They form the foundation that every other metric in this glossary builds on, since churn, retention and valuation calculations all start from a recurring revenue figure.

MRR (Monthly Recurring Revenue)

MRR is the normalised value of all active recurring subscriptions in a given month, excluding one-off charges and taxes. Formula: MRR = sum of (subscription price normalised to a monthly value) across all active subscribers. Example: 200 customers on a 50 dollar monthly plan plus 50 customers on a 600 dollar annual plan (equivalent to 50 dollars a month) gives MRR of (200 x 50) + (50 x 50) = 12,500 dollars. See what is MRR for a fuller definition, and how to calculate MRR in Stripe for the source-data approach.

ARR (Annual Recurring Revenue)

ARR is the annualised version of MRR. Formula: ARR = MRR x 12. Example: MRR of 12,500 dollars gives ARR of 150,000 dollars. ARR is often used in investor conversations and valuation discussions because it presents recurring revenue on a yearly scale that is easier to compare against annual costs and headcount.

New MRR

New MRR is the recurring revenue added by brand new customers in a period. Formula: New MRR = sum of first-month subscription value for customers who started that period. Example: 10 new customers on a 40 dollar plan add 400 dollars of new MRR in that month.

Expansion MRR

Expansion MRR is additional recurring revenue from existing customers upgrading plans, adding seats, or buying add-ons. Formula: Expansion MRR = sum of (new plan value minus old plan value) for upgrading customers, counted only when positive. Example: a customer moving from a 50 dollar plan to a 90 dollar plan contributes 40 dollars of expansion MRR.

Contraction MRR

Contraction MRR is the recurring revenue lost when existing customers downgrade or remove seats, without cancelling entirely. Formula: Contraction MRR = sum of (old plan value minus new plan value) for downgrading customers. Example: a customer dropping from a 90 dollar plan to a 50 dollar plan produces 40 dollars of contraction MRR.

Churned MRR

Churned MRR is the recurring revenue lost from customers who cancel entirely in a period. Formula: Churned MRR = sum of subscription value for customers who cancelled that month. Example: 5 customers cancelling a 60 dollar plan removes 300 dollars of MRR.

Net New MRR

Net New MRR nets all movement together in one period. Formula: Net New MRR = New MRR + Expansion MRR minus Contraction MRR minus Churned MRR. Example: 400 new, 40 expansion, 40 contraction and 300 churned gives Net New MRR of 400 + 40 minus 40 minus 300 = 100 dollars, a small net gain for the month.

Reactivation MRR

Reactivation MRR is recurring revenue returning from customers who previously cancelled and then resubscribed. Formula: Reactivation MRR = sum of subscription value for returning customers in the period. This is often tracked separately from New MRR since reactivated customers behave differently from first-time signups.

One-off revenue

One-off revenue covers non-recurring charges such as setup fees, one-time consulting or single-purchase add-ons. It is deliberately excluded from MRR because it does not repeat each month, but it still matters for total cash collected and should be tracked separately in Stripe revenue analytics dashboards that split subscription income from one-off payments.

Retention metrics measure how well a business keeps the customers and revenue it has already won, which is usually cheaper to protect than to replace with new acquisition.

Customer churn rate (logo churn)

Customer churn rate is the percentage of customers who cancel in a period. Formula: Churn rate = customers lost during period divided by customers at start of period, multiplied by 100. Example: starting with 500 customers and losing 20 gives a churn rate of 20 / 500 x 100 = 4 percent. Full walkthrough at SaaS churn rate.

Revenue churn rate

Revenue churn rate is the percentage of MRR lost to cancellations and downgrades in a period, ignoring expansion. Formula: Revenue churn rate = (Churned MRR + Contraction MRR) divided by MRR at start of period, multiplied by 100. Example: losing 800 dollars of MRR from a 20,000 dollar starting base gives 800 / 20,000 x 100 = 4 percent.

Gross revenue retention (GRR)

GRR measures how much recurring revenue is retained from existing customers, excluding any expansion, so it can never exceed 100 percent. Formula: GRR = (starting MRR minus churned MRR minus contraction MRR) divided by starting MRR, multiplied by 100. Example: starting at 20,000 dollars and losing 800 dollars to churn and 200 dollars to contraction gives GRR of (20,000 minus 800 minus 200) / 20,000 x 100 = 95 percent.

Net revenue retention (NRR)

NRR measures revenue retained from existing customers including expansion, so it can exceed 100 percent when upgrades outweigh losses. Formula: NRR = (starting MRR plus expansion MRR minus churned MRR minus contraction MRR) divided by starting MRR, multiplied by 100. Example: starting at 20,000 dollars, adding 600 dollars of expansion and losing 1,000 dollars combined gives NRR of (20,000 + 600 minus 1,000) / 20,000 x 100 = 97 percent. See net revenue retention for detailed benchmarks.

Customer lifetime (average subscriber lifespan)

Customer lifetime estimates how many months an average customer stays subscribed before cancelling. Formula: Average lifetime in months = 1 divided by monthly churn rate. Example: a 4 percent monthly churn rate implies an average lifetime of 1 / 0.04 = 25 months. This figure feeds directly into LTV calculations.

Cohort retention curve

A cohort retention curve tracks what percentage of a group of customers who joined in the same period remain active over subsequent months. It is usually shown as a table or chart of month 0, month 1, month 2 and so on, and is useful for spotting whether retention stabilises, keeps decaying, or improves with product changes over time.

Involuntary churn

Involuntary churn is cancellation caused by failed payments, such as an expired card, rather than a deliberate decision to leave. It is common in card-based subscription billing and is often addressed with retry logic and dunning emails, covered further in reducing churn in Stripe.

Voluntary churn

Voluntary churn is a customer actively cancelling their subscription, as opposed to losing access through a failed payment. Distinguishing voluntary from involuntary churn matters because the fixes differ: voluntary churn points to product or pricing issues, while involuntary churn points to payment recovery gaps.

Unit economics metrics assess whether a business makes money on each individual customer once acquisition and ongoing costs are accounted for.

ARPU (Average Revenue Per User)

ARPU is the average recurring revenue generated per active customer in a period. Formula: ARPU = MRR divided by number of active customers. Example: 12,500 dollars of MRR across 250 customers gives ARPU of 12,500 / 250 = 50 dollars. Full definition at ARPU.

ARPA (Average Revenue Per Account)

ARPA is essentially the same calculation as ARPU but framed around accounts rather than individual users, which matters for B2B products where one account can contain many users. Formula: ARPA = MRR divided by number of paying accounts.

LTV (Customer Lifetime Value)

LTV estimates the total revenue a business can expect from a customer over their entire subscription lifetime. Formula: LTV = ARPU divided by monthly churn rate. Example: ARPU of 50 dollars and a 4 percent monthly churn rate gives LTV of 50 / 0.04 = 1,250 dollars. See customer lifetime value for gross-margin adjusted variants.

Gross margin adjusted LTV

This variant of LTV accounts for the cost of serving a customer, not just gross revenue. Formula: Gross margin adjusted LTV = (ARPU x gross margin percentage) divided by monthly churn rate. Example: ARPU of 50 dollars, 80 percent gross margin and 4 percent churn gives LTV of (50 x 0.8) / 0.04 = 1,000 dollars, lower than the revenue-only figure.

CAC (Customer Acquisition Cost)

CAC is the total sales and marketing spend divided by the number of new customers acquired in the same period. Formula: CAC = total sales and marketing spend divided by new customers acquired. Example: spending 10,000 dollars to acquire 40 customers gives a CAC of 250 dollars.

LTV to CAC ratio

This ratio compares how much value a customer generates against how much it cost to win them. Formula: LTV to CAC ratio = LTV divided by CAC. Example: LTV of 1,250 dollars and CAC of 250 dollars gives a ratio of 5:1, above the commonly cited 3:1 rough benchmark for efficient growth.

CAC payback period

CAC payback period is the number of months it takes for a customer's gross margin contribution to cover their acquisition cost. Formula: CAC payback period (months) = CAC divided by (ARPU x gross margin percentage). Example: CAC of 250 dollars, ARPU of 50 dollars and 80 percent gross margin gives 250 / (50 x 0.8) = 6.25 months.

Gross margin

Gross margin is the percentage of revenue remaining after direct costs of delivering the service, such as hosting and payment processing fees, are removed. Formula: Gross margin percentage = (revenue minus cost of goods sold) divided by revenue, multiplied by 100. Most software businesses target gross margins in the 70 to 85 percent range as a rough benchmark.

Average order value (AOV)

AOV is the average value of a single transaction, more commonly used for one-off purchases sitting alongside a subscription business. Formula: AOV = total transaction value divided by number of transactions. Example: 5,000 dollars across 100 one-off purchases gives an AOV of 50 dollars.

Efficiency metrics measure how well a business converts spending into growth, which matters most once a company has a dedicated sales or marketing function to evaluate.

Magic number

The magic number measures sales efficiency by comparing new recurring revenue generated against sales and marketing spend from the prior period. Formula: Magic number = (Net New ARR in current quarter) divided by (sales and marketing spend in prior quarter). A result above 0.75 is a commonly cited rough threshold suggesting spend is being converted efficiently into new revenue.

Rule of 40

The Rule of 40 combines growth and profitability into a single sanity check. Formula: Rule of 40 score = revenue growth rate percentage plus profit margin percentage. Example: a company growing 30 percent year over year with a negative 5 percent margin scores 30 minus 5 = 25, below the commonly cited 40 threshold, suggesting growth is not yet balanced with efficiency.

Burn multiple

Burn multiple compares cash burned against net new ARR generated, useful for assessing capital efficiency. Formula: Burn multiple = net cash burned divided by net new ARR. Example: burning 500,000 dollars to generate 250,000 dollars of net new ARR gives a burn multiple of 2, meaning 2 dollars were spent for every 1 dollar of new recurring revenue.

Sales efficiency ratio

Sales efficiency ratio is closely related to the magic number and measures how much new revenue is generated per dollar of sales and marketing investment over a given window, often calculated annually rather than quarterly for a smoother read on trend.

Quick ratio (SaaS growth quick ratio)

The SaaS quick ratio measures growth efficiency by comparing revenue gained against revenue lost. Formula: Quick ratio = (New MRR plus Expansion MRR) divided by (Churned MRR plus Contraction MRR). Example: gaining 1,000 dollars of new and expansion MRR while losing 250 dollars gives a quick ratio of 4, meaning revenue is being added four times faster than it is being lost.

Time to value

Time to value is the time it takes a new customer to experience the core benefit of a product after signup. Shorter time to value is generally associated with lower early churn, since customers who quickly see results are less likely to cancel before renewal.

Cash metrics track the actual money moving in and out of the business, which can diverge from recurring revenue figures because of billing frequency, refunds and expenses.

Cash collected

Cash collected is the total amount actually received from customers in a period, including subscription charges, one-off payments and renewals, regardless of which period that revenue is recognised against for accounting purposes.

Deferred revenue

Deferred revenue is cash collected upfront for a service that has not yet been delivered, common with annual subscription plans billed in advance. It sits on the balance sheet as a liability and is recognised as revenue gradually over the subscription term.

Burn rate

Burn rate is the rate at which a company spends its cash reserves each month. Formula: Net burn rate = total cash out minus total cash in, per month. Example: spending 80,000 dollars and collecting 30,000 dollars in a month gives a net burn rate of 50,000 dollars.

Runway

Runway is how many months a company can continue operating at its current burn rate before running out of cash. Formula: Runway (months) = cash in bank divided by monthly net burn rate. Example: 600,000 dollars in the bank and a burn rate of 50,000 dollars a month gives a runway of 12 months.

Refund rate

Refund rate is the percentage of collected revenue returned to customers in a period. Formula: Refund rate = total refunds divided by total revenue collected, multiplied by 100. A rising refund rate can be an early warning sign of product or pricing problems worth investigating alongside churn.

Failed payment rate

Failed payment rate is the percentage of recurring billing attempts that fail on first try, often due to expired cards or insufficient funds. Formula: Failed payment rate = failed charges divided by total billing attempts, multiplied by 100. This metric feeds directly into involuntary churn and is worth monitoring inside Stripe dunning workflows.

Valuation metrics translate recurring revenue and growth performance into an estimate of what a business might be worth, which matters for fundraising, acquisitions and general planning.

Revenue multiple

A revenue multiple values a business as a multiple of its annual recurring revenue. Formula: Valuation estimate = ARR x multiple. A commonly cited shorthand for smaller subscription businesses is 5x ARR, which can also be expressed directly from MRR as Valuation = MRR x 60. Example: MRR of 12,500 dollars gives an estimated valuation of 12,500 x 60 = 750,000 dollars. See SaaS valuation multiples for how multiples vary with growth and retention.

EBITDA multiple

An EBITDA multiple values a business based on a multiple of its earnings before interest, tax, depreciation and amortisation, more commonly used for profitable, slower-growing subscription businesses than for early-stage venture-backed startups still focused on growth over profit.

Growth-adjusted multiple

A growth-adjusted multiple scales the base revenue multiple up or down depending on the company's year-over-year growth rate, since faster-growing recurring revenue is generally considered more valuable per dollar than flat or declining revenue.

Rule of thumb valuation range

Rather than a single number, many practitioners frame SaaS valuation as a range, for example 3x to 8x ARR, adjusted based on retention, growth rate and gross margin. Treat any single multiple as a starting point for discussion rather than a guaranteed sale price.

These terms come directly from how Stripe models subscriptions and billing, and they matter because they are the raw data that MRR, churn and retention calculations are built from.

Restricted API key

A restricted API key is a Stripe key scoped to specific read or write permissions rather than full account access. Tools like Subscription Metric ask for a read-only restricted key so that dashboards can be built from live data without the tool ever being able to move money or change account settings.

Subscription object

A subscription object in Stripe represents an ongoing billing arrangement between a customer and one or more prices, including its status, billing interval and current period dates. Nearly all MRR calculations are built by iterating over active subscription objects and normalising their price to a monthly value.

Invoice

An invoice in Stripe represents a bill issued to a customer, which can be generated automatically from a subscription or created manually for a one-off charge. Invoice status, such as paid, open or void, is what distinguishes actual cash collected from simply billed amounts.

Proration

Proration is the partial charge or credit applied when a subscription changes mid-cycle, such as an upgrade halfway through a billing period. Prorated amounts can distort a naive MRR calculation if they are not normalised back to a full monthly value.

Dunning

Dunning is the process of retrying failed payments and emailing customers to update their card details before a subscription is cancelled for non-payment. Effective dunning reduces involuntary churn, discussed further in reducing churn in Stripe.

Webhook

A webhook is an automated notification Stripe sends to another system when an event occurs, such as a subscription being created, updated or cancelled. Analytics dashboards often combine webhooks with periodic API pulls to keep metrics like MRR and churn up to date without constant manual refreshing.

Customer object

A customer object in Stripe represents an individual or organisation that can hold one or more subscriptions, payment methods and invoices. Grouping subscriptions by customer object is what makes it possible to calculate metrics like top customers by lifetime value across multiple products or plans.

Multiple connected accounts

Some businesses run more than one Stripe account, for example separate accounts per product line or region. Combining multiple connected Stripe keys into one consolidated view is necessary to see accurate total MRR, churn and valuation figures across the whole business rather than one fragment of it.

The most useful way to apply this glossary is to pick a small set of metrics that match your current stage, rather than trying to track all 50 or so terms at once.

An early-stage subscription business with under 1,000 customers typically gets the most value from tracking MRR, customer churn rate, ARPU and a rough LTV estimate, since these four numbers together describe most of what is happening to the business month to month. As a sales or marketing function is added, CAC, LTV to CAC ratio and CAC payback period become relevant for judging whether growth spend is efficient. Once the business has multiple years of data and is considering fundraising or a sale, net revenue retention, the Rule of 40 and a revenue multiple valuation become the more relevant lens.

Worked example combining several metrics

Consider a subscription business with 300 active customers and MRR of 15,000 dollars. ARPU is 15,000 / 300 = 50 dollars. If the business lost 12 customers that month, churn rate is 12 / 300 x 100 = 4 percent, implying an average customer lifetime of 1 / 0.04 = 25 months. LTV is therefore ARPU x lifetime, or 50 x 25 = 1,250 dollars. If it costs 250 dollars in sales and marketing spend to acquire each new customer, the LTV to CAC ratio is 1,250 / 250 = 5:1, comfortably above the commonly cited 3:1 rough benchmark. Finally, a rough valuation estimate using the 5x ARR shorthand would be MRR x 60, or 15,000 x 60 = 900,000 dollars.

Recalculating this table monthly from Stripe data, rather than a spreadsheet built once and rarely updated, is what turns a glossary of definitions into an operating dashboard. Tools connected via a restricted read-only Stripe key can compute all of these figures automatically as new invoices and subscription events come in, keeping the numbers current without manual exports.