MRR Growth Rate Calculator for SaaS Revenue

Traditionally we’re told: “Revenue is vanity; profit is sanity; cash flow is king.” But with subscription software, our rules changes: Recurring revenue behaves as though it’s compounding. For a company built on recurring subscriptions, what’s most important isn’t the dollar amount in your bank account, it’s the slope (or rate). Are you filling a leaky bucket? Or building a snowball?

Usually the answer come down to how you think about dollars exiting the business. Most founders track only their top-line revenues (and cheer when they close new contracts) without tracking those customers who recently cancelled or downgraded. That’s where growth grinds to a halt.

Understanding Your Revenue Numbers

Revenue movement is best understood by breaking it into its most basic parts. The first component is growth revenue, new customers bringing in new money which is both immediate and visible so it feels good. The second component is expansion revenue, existing customer adding seats or upgrading. This tend to be more valuable (cheaper to capture) and often more significant.

Finally, we come to the other side of the ledger. On the negative side is churned revenue, which comes from those customers who left completely and took their recurring billings with them. And then contraction revenue, which is trickier since the customer hasn’t gone away; however, through reduced usage or downgrades, they’re paying you less.

It’s very easy to lump churn and contraction together, and as such make poor hiring choices. If you lose more money through contraction (downgrades) then you do from actual churn (cancellations) you’ll never solve that problem by throwing more dollars at acquisition. You’ll need clearer value propositions and/or better packaging to retain your customers on higher tiers.

After plugging in your own specific revenue flows into the calculator above, it spits out your net MRR growth rate: The initial balance + new & expansion revenues (churn & contraction). But the growth rate itself isn’t enough. It’s only a speedometer, showing you how fast you’re moving… But not whether or not your engine will stall on you.

That’s where the quick ratio comes into play. It represents the ratio of your incoming revenue vs. It is your lost revenue. If this figure dips below one, then even though your overall revenue might be growing, you’re losing money at a faster pace. In other words, it serves as your company pressure gauge.

If you have lots of spare capacity, enough to spend on product development, or marketing, your quick ratio is higher than four. If it’s closer to one, then you’re just treading water: each drop of acquisition replaces another drop of churn.

There’s another dimension to the truth: retention metrics. How many of your customers do you retain without an upsell? Gross retention is how many customer you keep without an upsell. How many and what dollar amount do you retain after upselling? Net revenue retention.

If your net retention is high and your gross retention is low, then your product is good enough for folks to pay more to use, but bad enough that they downgrade when times are tough. This is not a great place to build from. Ideally you want them both to be high.

On top of projecting out when you’ll reach a certain MRR (based off where you’re at today), this can help plan for system or headcount requirements. Say you’re growing five percent each month. That means it’ll take you about fifteen months to double your revenue. Fifteen percent? You’ll double within five months.

Yes, that’s the speed difference, but there’s also the operational chaos of having to handle rapid growth. It’s not to say you shouldn’t use this data. In fact, I hope founders do. It would be great for all of us to see more companies being honest about their metrics. However, you have to be honest when you use this data.

If you’re fudging the churn numbers so that growth rate appears higher, savvy operators and investors will smell it immediately. Experienced operators know that we want to see the quality of the growth. We want to know whether it’s a desperate grab for new logos (the “growth” is unreliable) or whether it’s coming from legitimate expansion.

This is where the reference tables in the tool come into play: they allow you to compare yourself against industry standards. Healthy growth is slow growth in a mature market. Unhealthy growth is rapid growth accompanied by high churn. It is a time bomb.

What quadrant are you in? Do you know what the numbers is saying? Don’t take my word for it: the numbers don’t lie. But, they will mislead you if you don’t know what questions to ask them.

Know your growth story. Your revenue doesn’t just represent a number; it represents a story of how you’re treating your customers every single month. You should of checked this more carefully.