SaaS Metrics Explained: MRR, ARR, Churn, and the Numbers Investors Watch
Software-as-a-service companies run on subscriptions, and subscriptions reveal patterns that one-time sales hide. A small set of recurring-revenue metrics tells most of the story about whether a SaaS company is healthy, growing predictably, or quietly leaking.
MRR and ARR
Monthly Recurring Revenue (MRR) is the normalized monthly subscription revenue, excluding one-time fees. It's the cleanest single number for watching how a SaaS business changes month to month. Multiplied by twelve, it becomes Annual Recurring Revenue (ARR), the figure most often quoted in financing rounds.
Within MRR, finance teams subtract churn (customers leaving or downgrading) and add expansion plans and new logos. MRR is forward-looking in a way one-time sales never can be: if today's revenue will mostly recur next month, you can forecast.
Churn and Net Revenue Retention
Gross churn measures the share of recurring revenue lost in a period; net churn subtracts upgrades and price increases. Strong SaaS companies show negative net churn — the same customer base grows each quarter.
Net Revenue Retention (NRR) expresses this same idea as a single percentage: it's net new recurring revenue from existing customers divided by starting revenue, over a year. NRR above 100% is a strong sign of a healthy compounding engine even without new sales. Investors pay close attention to NRR because high NRR makes growth durable and unit economics clean.
This article is an introductory overview and not financial advice. Definitions vary by firm; confirm how each metric is calculated before relying on one.