Subscription businesses are judged on a specific set of metrics. Build the monthly recurring revenue bridge and calculate ARR, revenue retention, churn, quick ratio and the Rule of 40 from one month’s data.
How it works
Build the monthly recurring revenue bridge and calculate the subscription metrics investors track: ARR, net and gross revenue retention, customer churn, SaaS quick ratio and the Rule of 40.
Ending MRR = Beginning + New + Expansion − Contraction − Churn; ARR = Ending MRR × 12
Net revenue retention = (Beginning + Expansion − Contraction − Churn) ÷ Beginning
Gross revenue retention = (Beginning − Contraction − Churn) ÷ Beginning
Quick ratio = (New + Expansion) ÷ (Contraction + Churn)
Rule of 40 = Revenue growth % + Profit margin %Common uses
- Board and investor reporting for subscription companies
- Fundraising and valuation preparation
- Monitoring customer retention and growth efficiency
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Beginning MRR | $420,000 |
| New MRR | $38,000 |
| Expansion MRR | $16,500 |
| Contraction MRR | $4,200 |
| Churned MRR | $9,800 |
| Customers at start of month | 1,400 |
| New customers | 120 |
| Churned customers | 35 |
| Annual revenue growth rate | 42% |
| Profit margin (EBITDA or FCF) | -6% |
| Annual recurring revenue (ARR) | $5,526,000 |
| Ending MRR | $460,500 |
| Net revenue retention (annualized) | 107.4% |
| Gross revenue retention (annualized) | 66.6% |
| Customer (logo) churn | 2.5% |
| SaaS quick ratio | 3.89× |
| Rule of 40 | 36.0% |
| Average MRR per customer | $310.10 |
Annualized retention compounds one month’s rates; cohort-based annual NRR is more precise when you have the data.
Interpreting the results
- Net revenue retention above 100% means existing customers grow revenue even before new sales.
- A quick ratio of 4 or more indicates efficient growth; below 1 means recurring revenue is shrinking.
- Companies scoring 40% or more on the Rule of 40 are generally viewed as balancing growth and profitability well.
Frequently asked questions
What is the difference between net and gross revenue retention?
Gross revenue retention measures recurring revenue kept from existing customers after contraction and churn, so it can never exceed 100%. Net revenue retention also adds expansion revenue, and exceeds 100% when existing customers grow faster than others leave.
What is the SaaS quick ratio?
The SaaS quick ratio divides recurring revenue gained from new and expansion sales by revenue lost to contraction and churn. A ratio of 4 or more is widely regarded as efficient growth.
What is the Rule of 40?
The Rule of 40 states that a software company’s revenue growth rate plus its profit margin should be at least 40%. It balances growth against profitability, so a fast-growing company can run losses and still pass.
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- KPI Scorecard Builder: Target vs. actual KPIs with red/amber/green status and a weighted overall score.