The Startup Metrics Glossary — ARR, MRR, LTV, CAC, and Churn Explained

#MRR and ARR — How Recurring Your Revenue Really Is

MRR, or Monthly Recurring Revenue, is the subscription revenue that recurs every month. ARR, or Annual Recurring Revenue, is its annualized version; in a simple subscription model, ARR equals MRR times 12. One-time revenue, like setup fees, consulting, or hardware, is not recurring, so it should be excluded from both MRR and ARR. Blur this distinction and your entire growth rate gets distorted.

#Breaking Down MRR — New, Expansion, Contraction, Churned

The same MRR growth can mean very different things depending on where it came from: new customers, upsells from existing customers, or what's left after backfilling churn. Breaking it down is how you actually see the health of the business. Net New MRR is what genuinely grew this month.

#ARPU and ARPA — Revenue per Customer

ARPU, or Average Revenue Per User, is average revenue per individual user. ARPA, or Average Revenue Per Account, is average revenue per company account. B2C businesses mostly use ARPU, while B2B SaaS mostly uses ARPA. Both feed into your LTV calculation and let you track the effect of pricing changes over time.

#Churn — Loss Rate, by Customer or by Revenue

Churn is your loss rate. Logo, or customer, churn is measured by headcount; revenue churn is measured by dollars. The two can move independently: a lot of small customers can churn while your biggest accounts stay, keeping revenue churn low. Investors look at both together.

#NRR and GRR — Retention and Expansion

NRR, or Net Revenue Retention, tracks what your existing customers alone, excluding any new ones, generate in revenue a year later. When expansion outpaces churn, it goes above 100%. GRR, or Gross Revenue Retention, strips out expansion and measures pure retention. The gap between the two tells you how much expansion is contributing.

#LTV and CAC — Unit Economics

CAC, or Customer Acquisition Cost, is what it costs to acquire one customer. LTV, or Lifetime Value, is the cumulative contribution margin that customer generates before they churn. The ratio between the two, and how long it takes to pay back CAC, determines whether your business model is sustainable. LTV needs to be calculated on contribution margin, not revenue, to be accurate.

#Rule of 40, Burn Multiple, and Magic Number

These are composite metrics that reduce growth and efficiency to a single number. Rule of 40 checks whether your growth rate plus your profit margin clears 40. Burn Multiple measures ARR generated relative to cash burned. Magic Number measures how efficiently sales and marketing spend converts into revenue. All three matter more as a company matures.

#Self-Check — Does Your Pitch Define Its Own Metrics?

1. Have you specified whether ARR means MRR times 12 or actual contracted revenue?
2. Are recurring and one-time revenue broken out separately?
3. Have you broken MRR down into New, Expansion, Contraction, and Churned?
4. Do you present churn both by customer and by revenue, annualized?
5. Do you present NRR alongside GRR so expansion is not masking churn?
6. Is your LTV based on contribution margin rather than revenue, and does LTV:CAC clear 3:1?
7. Are you emphasizing the composite metric that fits your stage, growth early on, efficiency later?