If you run a subscription business, your revenue does not arrive as one lump sum, it recurs month after month. Investors know this, so they judge SaaS companies less on a single revenue figure and more on four metrics that describe how predictable, sticky, and efficient that recurring revenue is: MRR, ARR, Net Revenue Retention, and the Magic Number. Learn to calculate these before your first fundraise, because any serious term-sheet conversation will assume you already track them.
MRR and ARR: your revenue base
Monthly Recurring Revenue (MRR) is the predictable subscription revenue you can expect every month. If 100 customers each pay Rs 10,000 a month, your MRR is Rs 10,00,000. Annual Recurring Revenue (ARR) is simply MRR multiplied by 12, so Rs 1.2 crore here. Count only recurring subscription fees. Exclude one-time setup charges, custom implementation work, and Goods and Services Tax, because none of those repeat reliably.
Break MRR into its moving parts so you can see what is really happening: new MRR from new customers, expansion MRR from upgrades, contraction MRR from downgrades, and churned MRR from cancellations. Net new MRR is new plus expansion, minus contraction and churn.
Net Revenue Retention: is your revenue sticky?
Net Revenue Retention (NRR), also called Net Dollar Retention, measures how much recurring revenue you keep and grow from your existing customers over a period, ignoring any new customers you sign. Take the cohort's starting recurring revenue, add expansion, subtract contraction and churn, then divide by that starting figure.
Example: a cohort starts the year at Rs 10,00,000 MRR. Upgrades add Rs 2,00,000, while downgrades and cancellations remove Rs 1,00,000, so it ends at Rs 11,00,000. NRR is 11,00,000 divided by 10,00,000, which is 110%.
NRR of 100% means your existing customers are flat. Above 100% means they grow on their own, so the business can expand even if you never sign another customer, which is exactly why investors prize it. For B2B SaaS, above 110% is considered good and best-in-class companies exceed 130%. Below 100% signals a leak, and every new sale is first spent just plugging it.
The SaaS Magic Number: is growth efficient?
The Magic Number tells you how much new recurring revenue each rupee of sales and marketing buys. A common version divides the net new ARR you added in a quarter by the previous quarter's sales and marketing spend, which allows for the lag between spending and closing.
Example: last quarter you spent Rs 40,00,000 on sales and marketing, and this quarter you added Rs 30,00,000 of net new ARR. The Magic Number is 30,00,000 divided by 40,00,000, which is 0.75.
The widely used rule of thumb: below 0.75, fix the engine before spending more, because acquisition is inefficient. At or above 0.75, you have earned the right to pour in more sales and marketing, because each rupee is returning enough new recurring revenue to pay back reasonably fast. Always read it alongside NRR, because strong retention makes even a modest Magic Number far more valuable: the revenue you buy today keeps compounding instead of leaking away.
An India note on what counts as revenue
Two India-specific points. First, GST is not your revenue. Domestic SaaS is taxed at 18% GST, but you collect that on behalf of the government and pass it through, so keep it out of MRR and ARR. Second, if you sell to customers outside India, export of services is zero-rated under GST. File a Letter of Undertaking (Form GST RFD-11) at the start of the financial year to invoice foreign clients without charging IGST, while still claiming input tax credit on your own costs. Many Indian SaaS founders bill overseas customers in US dollars, so set a consistent exchange-rate policy for reporting ARR and hold it steady, so your metrics stay comparable from quarter to quarter.