← Business Metric: Operational (all topics)
ARR, MRR & net revenue retention
What it is
Annual and monthly recurring revenue measure the contracted subscription base rather than billings. Net revenue retention tracks what a cohort of existing customers spends a year later, including upgrades and losses
Retention above 100% means the base grows without a single new customer
Impact on industries
- Recurring revenue is predictable and compounds, which is why subscription businesses command higher valuation multiples than transactional ones
- Net revenue retention above 100% is the strongest signal in software economics - existing customers alone fund growth
- Recurring revenue is only as durable as the contract and the switching cost behind it, and both are often weaker than claimed
- The transition from licence to subscription depresses reported revenue for years before the model looks better, which obscures the underlying trend