Metrics dictionary
Recurring & Reoccurring Quality of Revenue Metrics
Quality-of-revenue metrics for recurring and reoccurring business models, organized by the five components a buyer underwrites: scale, durability, concentration, efficiency, and predictability. Definition, formula, and the insight behind each. Apply the definitions that fit your business model; ARR-specific formulas assume an identifiable recurring base.
Read the definition before the ratio.
State the date or period, currency, customer population and reporting perimeter. Retention uses the same starting-customer cohort; exclude new logos and customers outside that cohort. Reconcile customer returns within the chosen cohort rather than silently changing the base.
Worked retention case · One starting-cohort customer has $100 of ARR, cancels, then returns with $80 within the same period. Record $100 of churn and $80 of reactivation. NRR is ($100 − $100 + $80) ÷ $100 = 80%. Under the movement-based GRR convention here, GRR is ($100 − $100) ÷ $100 = 0% because reactivation is excluded. Do not report the 80% ending balance as this convention’s GRR.
Fractions are unitless unless noted; multiply by 100 to express a percentage. Gross margin in the payback formula is a decimal. If a required input is missing or a normally positive denominator is zero or negative, report “not meaningful” with the underlying inputs and explanation. Do not replace unknowns with zero or present infinity as a favorable result.
01 · Scale & Growth
How big is the recurring base, and how fast is it compounding?ARR
Annualized value of all active recurring contracts at a point in time.
Use the recurring rate active on the measurement date. Keep future contracted value (CARR), recognized revenue and invoice amounts separate; reconcile between them.
New ARR
Recurring revenue added from newly-won logos in the period.
Tag at source and keep separate from expansion. Committed-but-not-live is where sales and finance diverge.
Recurring Revenue Mix
Share of total revenue that is genuinely recurring (vs. services and one-time).
The first quality test. A high headline growth rate built on one-time revenue is not a recurring business.
Growth Rate
Percent change in ARR over a comparable period.
Read next to retention. High growth on a leaky base is a bucket you're refilling, not a business compounding.
02 · Durability & Retention
Will the base hold, and grow, without new logos?Gross Revenue Retention
Starting-cohort ARR after recorded contraction and churn, excluding expansion and reactivation.
Movement-based convention: reductions count in the period; returning revenue does not offset them. Keep this distinct from an endpoint-only gross-retention variant and disclose event aggregation rules.
Net Revenue Retention
Retention of the fixed starting cohort, including its expansion and reactivation.
Include returns only from customers present at the start. Exclude new logos and returns from outside that cohort. The numerator must reconcile to ending ARR for that same cohort; >100% is expansion on this basis, not a quality verdict.
Logo Retention
Share of customers (counts, not dollars) retained across the period.
Read against GRR: high GRR + low logo retention means you're holding the whales and losing the long tail.
ARR Quick Ratio
How efficiently ARR is added versus lost.
This convention includes reactivation in additions. A ratio of 1 means equal additions and reductions; inspect the underlying dollars. A zero loss denominator makes the ratio undefined, not evidence of infinite efficiency.
03 · Concentration & Mix
How dependent is revenue on a few customers, products, or cohorts?Customer Concentration
Share of ARR held by the top N customers.
High concentration can make a major customer’s churn material to a buyer’s assessment. Consider the exposure alongside contract terms, retention and the rest of the customer base.
ARR per Customer
Average recurring value per active customer.
Watch the trend, not the level, a rising average can hide a shrinking long tail (or vice-versa).
Cohort Net Retention
How a given start-cohort's ARR evolves over time.
Compare cohorts at the same age and expose observation gaps. Contract length and customer mix can affect comparisons.
04 · Efficiency & Unit Economics
What does this growth cost, and does it pay back?Rule of 40
A heuristic combining annual revenue growth and free-cash-flow margin for the same year.
The name refers to a 40-percentage-point heuristic, not a pass/fail valuation rule. State the period, revenue scope and margin definition; compare the components as well as the sum.
Magic Number
Quarterly sales-efficiency proxy using recognized subscription revenue on a consistent reporting perimeter.
Both revenue inputs cover a full quarter and include the existing customer base. ×4 annualizes the quarterly change; do not apply it again to an ARR change. Use prior-quarter total S&M expense, disclose FX/perimeter changes, and compare several periods.
CAC Payback
Estimated months to recover acquisition cost for a defined new-customer cohort at a steady monthly gross-profit contribution.
CAC is fully allocated new-customer S&M cost divided by acquired customers in a stated acquisition window. Exclude expansion spend and document attribution lag. Use monthly ARPA and gross margin from that cohort. This estimate assumes a steady contribution and does not model future churn.
LTV : CAC
Lifetime value of a customer relative to the cost to acquire them.
Document the modeled customer lifetime, retention curve, gross margin and discount assumptions. Compare sensitivity across plausible horizons; no universal ratio or lifetime cap establishes quality.
05 · Predictability & Provenance
Can you prove every number, and reconcile it to the financials?ARR–Revenue Bridge Coverage
Share of ARR that ties cleanly to GAAP subscription revenue.
Unexplained gaps may prompt further diligence or affect a buyer’s assessment. The metric alone does not establish a valuation effect.
Data Quality Score
Share of revenue records passing integrity checks.
Entity, referential, domain, and business-rule integrity, the bedrock a living ARR system stands on.
Provenance Depth
Share of ARR traceable to a customer, contract, and source transaction.
Traceable records can make questions about ARR movements easier to investigate. Response time also depends on the question, systems and review process.
Define the number before you ask someone to rely on it.
These are the outputs. Building ARR from the Ground Up is how you produce them, and the Diligence Cheat Sheet is how you prove them under fire.