MRR & ARR Growth Rate: A SaaS Founder's Guide to Revenue Metrics

As a SaaS founder, growth metrics are your lifeblood. And fully understanding them will let you unlock smarter strategies for scaling your business.

Are you growing fast enough to impress investors? Is your recurring revenue resilient enough to weather churn? And how do you scale sustainably without spiraling costs? These are the constant questions keeping SaaS founders and executives on their toes.

If you’ve ever wondered how to truly understand and leverage MRR and ARR to scale smarter, you’re in the right place.

In this guide, we’ll cut through the jargon and focus on what matters most:

• What MRR and ARR really mean for your SaaS business.
• How to calculate and grow these metrics strategically.
• Proven strategies and SaaS growth paths to drive real results.

Ready to take your SaaS growth to the next level? Let’s dive in.

About the SaaS Business Model

As we explore growth strategies, it’s crucial to start with a strong understanding of the unique dynamics of SaaS businesses. Unlike traditional product sales, the SaaS model thrives on recurring revenue, which introduces its own set of challenges and opportunities.

SaaS companies don’t sell software—they deliver an ongoing service, typically accessed over the internet. This fundamental distinction is the foundation of the SaaS business model: a subscription-based pricing structure that fosters predictable, recurring revenue streams.

But with this comes higher customer expectations. Users don’t just want access to software; they expect seamless onboarding, continuous support, regular updates, and meaningful improvements. In exchange, SaaS businesses benefit from stable, long-term revenue—provided they don’t fall into the trap of becoming overly reliant on professional services to sustain growth.

Here’s where many SaaS founders falter: focusing too heavily on one or two metrics while neglecting the bigger picture. A subscription model is complex, with interdependent parts that all need optimization.

To simplify, let’s break down the SaaS business into two core components:

• Revenue: Generated from new sales and recurring revenue.
• Expenses: Comprising Customer Acquisition Cost (CAC) and Cost to Serve (CTS).

Striking the right balance between these elements is the key to profitability. When you optimize recurring revenue and control your expenses, you’re setting the stage for sustainable growth. Keep this dynamic in mind as we dive into the metrics that truly matter—MRR and ARR.

Understanding MRR and ARR in SaaS

When it comes to SaaS success, Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are the lifeblood of your business. 

These metrics are indicators of how well your product resonates with your audience, how effectively you’re retaining customers, and how predictable your growth trajectory can be. 

For founders and executives, understanding MRR and ARR is non-negotiable. Let’s break them down.

What is MRR in SaaS?

MRR, or Monthly Recurring Revenue, is the total predictable revenue your SaaS business generates each month from subscription-based customers. 

Think of it as the heartbeat of your company’s revenue stream. It’s consistent, measurable, and allows you to track trends, spot anomalies, and forecast growth with precision.

Here’s a simple way to think about MRR:

• If your SaaS business charges customers $500 per month for a subscription and you have 20 active customers, your MRR is $10,000.
• If a customer upgrades or downgrades their plan, your MRR changes accordingly.

Why is MRR important?

MRR is your real-time tracker. 

It shows whether your SaaS business is growing, stagnating, or losing momentum. Unlike annual metrics, MRR offers a quick pulse check so you can make timely decisions about marketing, sales, or product improvements.

But MRR is more than just a snapshot of your monthly revenue. It’s also a foundation for understanding trends like:

• New MRR: Revenue from new customer acquisitions.
• Expansion MRR: Revenue gained from upsells or upgrades.
• Churned MRR: Revenue lost due to cancellations or downgrades.

These categories help you identify what’s driving growth—and what’s holding you back. For example, if churned MRR is consistently high, it’s a signal to revisit your onboarding process or customer retention strategies.

As a SaaS founder, mastering MRR means gaining a clear view of your short-term health. But to see the bigger picture, you need to pair it with ARR, which we’ll dive into next.

What is ARR in SaaS?

Annual Recurring Revenue (ARR) totals the value of revenue earned by your subscriptions in a year. ARR is often used in valuation conversations (ARR multiples as an investment valuation tool) as opposed to MRR, which is more often used as an operating metric.

MRR vs. ARR: What's the Difference?

At a glance, MRR and ARR might seem like two sides of the same coin. Both metrics track recurring revenue from your subscriptions, but they serve distinct purposes:

• Use MRR for tactical decision-making and day-to-day operations.
• Use ARR for strategic planning, investor discussions, and benchmarking long-term success.

MRR is ideal for tracking growth, spotting trends, and adjusting your strategies on the fly. For example, if you notice a dip in MRR this month, you can immediately investigate whether churn is creeping up or new customer acquisitions are slowing down.

ARR, on the other hand, is a key metric for strategic planning and conversations with investors. ARR is your north star when discussing valuations, setting growth targets, or mapping out expansion plans. For example, if your ARR isn’t growing year-over-year, it’s a signal to revisit your go-to-market strategy or explore new revenue streams.

How to Calculate Your SaaS ARR

If you’ve ever Googled how to calculate ARR, you’ve probably encountered a variety of formulas. But let’s keep it simple: while precise calculations matter, what’s more important is understanding the concept of ARR and its role in driving SaaS growth.

The golden rule? Clarify the formula you’re using and stick to it. Inconsistent calculations can lead to skewed insights and poor decision-making. 

To get you started, here’s one of the most straightforward formulas:

Number of Paying Users x ARPU = ARR

Key Tips for Accurate ARR Calculation

• Exclude One-Time Payments: ARR is about recurring revenue, so one-time charges or fees should typically be left out.
• Filter Short-Term Contracts: Subscriptions shorter than your defined term (e.g., less than a year) might not belong in your ARR calculation.
• Distinguish Revenue Types: Always differentiate between 'booked/contracted revenue' and 'cash-in-hand' revenue to maintain clarity.

Other formulas that can be useful:

ARR = MRR x 12
ARR = Yearly subscription revenue + expansion revenue - churn loss

In short, keep in mind that any ARR talk is more about metrics and decision-making. If we're talking accounting, let's stick to GAAP (if in the USA) revenue definitions.

What is a Good ARR for SaaS?

Benchmarks can be useful as long as they're understood in context. When asking what a good conversion rate is or good funnel metrics are, you have to remember that metrics like that depend on time, place, industry, and a whole host of other factors.

That said, there is a benchmark you can try to compare yourself against. Salesforce may be the most popular example of this: T2D3.

You may have heard the term T2D3 before. T2D3 refers to the growth trajectory that the most successful tech startups follow. They all Triple their ARR two years in a row then Double their ARR three more years in a row, resulting in $100M ARR and landing them at the $1B valuations coveted by investors everywhere. 

Of course, hitting those hockey-stick growth numbers isn’t easy, which is why understanding ARR—and how to grow it—is essential. Later on in the guide, we’ll dive deeper into strategies to help you get there.

Understanding ARR During Each B2B SaaS Maturity Level

While benchmarks like T2D3 can be inspiring, the journey to achieving them depends on where your company stands today. ARR goals vary across different stages of maturity, so let’s explore how priorities shift as your business grows.

A successful SaaS enterprise evolves through four distinct growth stages. Each stage emphasizes different KPIs critical for driving progress and ensuring sustainable growth. 

Let’s break them down:

- Start Stage: MVP to PMF

The first step is getting a working MVP that's usable and useful. Get people to test it, like it, and hopefully talk about it. At this stage, you want as many users as you can get to help validate your business idea and reach Product-Market Fit.

This stage ends once you hit PMF.

Before you can really start spending on marketing, you have to confirm you've reached product-market fit. This checklist is a good place to start. The idea is to validate your GTM hypotheses by getting raving early adopters who pay and stay, who vote not only with their time but also with their wallets, and who ultimately close out the last step in the flywheel by bringing in more people themselves.

Important KPIs:

• MQLs: Marketing qualified leads - we know what a good prospect looks like (ICP & persona work) in terms of attributes and activities.
• Customer Validation: Measure adoption rates, retention, and early customer feedback.

- Scale Stage: PMF to T2D3

👉This is where we start really caring about ARR!

Once you've hit PMF, your next priorities are about scaling up and growing. Enter ARR growth.
A lot of tech companies ignore profitability early on in order to build an important user base. A lot of them may have churned, but most of them had a CAC that was higher than their LTV, etc.

Important KPIs at this stage:

• LVR (Lead Velocity Rate): Track the growth rate of MQLs entering your pipeline to ensure demand keeps pace with scaling efforts.
• Churn Reduction: Implement nurture campaigns and retention programs to boost LTV and keep churn in check.
• ARPU (Average Revenue Per User): Focus on upselling and automation to maximize revenue per user.

- Profit Stage: T2D3 to 40%

Once you've hit PMF, the timer starts ticking. 

The most successful companies hit $100M in ~5 years from confirming PMF. After years of growth-focused scaling, it's time to start cashing in. Profitability growth sounds a lot like ARR growth, but the big distinction is that we're moving from increasing positive metrics to decreasing negative ones.

B2B SaaS companies are selling an ongoing service after all. Growth will eventually start to plateau. The law of diminishing marginal returns dictates that past a certain point, efforts in a new area will yield greater results than equal efforts in the area you've already been focusing on. 

After years of improving customer retention, demand, and growing ARPU, the next best things will be to optimize CTS, CAC, and eventually go back to your first positioning and Ansoff exercises, revisit your SOM, and finally expand your ICP.

Lastly, once ARR and user-acquisition growth start to slow down, make sure that profitability keeps up. As long as profit and growth continue adding up to 40% or more, you'll be in the clear.

Important KPIs:

• Optimize CAC and CTS (Cost to Serve): Lower customer acquisition costs and streamline service delivery to improve margins.
• The Rule of 40%: Ensure that your profitability and growth rates combine to meet or exceed 40%, a critical benchmark for investors.
• LTV Growth: When growth slows, increasing the Lifetime Value (LTV) of your existing customers through upselling and retention becomes vital.

Understanding these stages and the associated KPIs ensures your SaaS business stays on the path to predictable growth. Whether you’re validating your MVP or scaling toward enterprise-level profitability, focusing on the right metrics at the right time will keep your ARR growth on track.

Now, knowing where you stand in your growth journey is half the battle. The other half? Taking action. Whether you're just hitting Product-Market Fit or scaling toward the Rule of 40%, these strategies will help you accelerate ARR and MRR growth.

12 Actionable ARR and MRR Growth Strategies for SaaS Founders

If you've skipped straight to this section, just remember the main takeaway: ARR growth must be approached holistically by focusing on different factors at different times of your growth journey.

1. Understand all the factors at play

• While not mathematically accurate, this thematically correct formula shows the different areas you can optimize and the effect each of them has on your bottom line.
  This formula is taken directly from co-founder Stijn Hendrikse's book of the same name, T2D3. Check it out for a whole ecosystem of articles and resources, including a masterclass. 
• You want CAC and churn to go down while increasing MQL and ARPU growth and optimizing conversion rates.

2. Map your ACV to the right Go-to-Market

• You can hit $1M ARR by making 10 sales at $100k each, or by making 10,000 sales at $100 each. The lower the ACV, the more low-touch and zero-touch acquisition methods can work.
• Self-service freemium and free trials and drive your funnel without much sales or even marketing interaction. On the other hand, if your customers are big enterprises or government contracts with longer sales cycles and more relationship-building and analyst

3. Improve the quality and quantity of your MQLs

No two ways about it. No MQLs, no sales, no revenue. You hit PMF, you’ve confirmed your ICP; you have permission to spend marketing dollars. The question is where and how. You have so many options!

• We talk a lot about balancing long-term setup (organic) with quick wins (paid). We talk about lead scoring, nurture, paid media, ABM, etc. On your way to PMF you may have used a few of these and figured out which ones you'd like to double down on, try next, or stop using.
• Friction reduction is paramount for improved conversion rates. Aside from improving raw generation numbers (page visits, lead magnet downloads), a single % improvement between one step and another (e.g. MQL to SQL or subscriber to lead) can have a much bigger effect on the later stages of the funnel than strict improvements at any one stage.
• Revisit your ICP criteria at least once a year if not every 6 months, and compare your funnel, as well as your closed, won vs lost to your ICP, and talk about any findings or patterns.
• Align sales and marketing. Make sure sales follow up on MQLs handed off by marketing while they're still hot. Make sure marketing isn't wasting the time of sales with low-quality MQLs.

4. Optimize your CAC

• Early on, a lot of tech companies can justify exorbitant CACs because users are worth more than their LTV when trying to cross the chasm. But that's temporary.
• In your effort to lower your CAC, you'll inevitably strengthen your demand generation standards, resulting in a cleaner funnel with higher ARR potential in the form of better conversion rates, increased ARPU, and increased LTV.
• Notice the use of the word "optimize" instead of "decrease". Sometimes, the optimal CAC is not the lowest CAC. Find the sweet spot.
• You should implement solid NPS (net promoter score) feedback loops, referral programs and incentives to get that SaaS inbound flywheel in full swing.

5. Get churn under control

• The whole premise of subscription-based pricing is the recurring element of it. Churn is your biggest enemy in the long run. Start thinking about how to optimize it earlier rather than later.
• Two go-to ways are nurture campaigns and retention programs.
  • Nurture campaigns can be aimed at leads and MQLs, recent app signup users, and of course customers as well. From simple marketing emails to more involved onboarding emails, nurturing content can keep the target audience engaged.
  • More importantly, when it comes to churning, retention should be baked into the software and service components of the offering. Marketing's job often ends when the MQL is handed off to sales after all.
  • The HEART framework helps break down how UX can be impacted inside and outside of the software. This is most important to help identify at-risk customers.
  • The best place to start with churn reduction is by targeting at-risk customers. Threats and signs can depend on your SaaS and industry, but a universal signal is an engagement. App usage metrics are paramount to track which customers are decreasing their usage of your app, allowing sales and customer success to jump in before it's too late.

6. Increase ARPU and LTV

• Sales may have gotten used to offering discounts and focusing on new business at the expense of driving upsells and potentially renewals.
• A great first step when growth starts slowing down is ensuring that the ACV is as high as can be.
  • To do so, the sales team can stop using discounts to get people in the door and sell at full price.
  • On top of selling bigger accounts, the sales team can look to bake into its sales process upselling and cross-selling points. A bigger emphasis on account management will yield equal and eventually greater returns than a focus on new business, so start laying the foundation for that as you go.
• Cracking down on discounting will not only increase your average LTV (the holy grail metric in the SaaS world), but it will also indirectly reduce your churn by keeping at bay lower-quality prospects.
• Depending on your ACV and user numbers, an incorrectly-timed trial period can really add up in lost revenue. Make sure that your 7-, 14-, or 30-day trial is of the appropriate length. You really want to go through the onboarding process as early as possible to reinforce the feeling of commitment.
• Speaking of which, once the trial is over, sales should really drive year-long commitments. Month-to-month or sub-year contracts should be exceptions.

7. Optimize your pricing strategy

• You can raise your prices every year or two with no impact on sales volume.
• But more importantly, you have to make sure that your pricing structure is optimal to being with. Just like your ICP, you're expected to keep coming back to your pricing framework.
• That said, a good place to start is making sure you're not offering too many or too little options.
• You should also strive towards value-based pricing.

8. Nail your niche

• This is done by focusing on your ICP, diving deep into your sales data and identifying any patterns, use cases, or verticals that you really resonate with.
• The result is an increased likelihood to survive midway through your 5-year T2D3 journey when competition is at its peak and the only companies to survive are the biggest players with the most lighthouse logos, strongest word-of-mouth, and traction, or most robust niches.

9. Work on your analyst relations

• As your product category matures and more and more people cross the chasm, you might find yourself or at least your market featured as a software category by leading analysts.
• Aside from PPL (pay-per-lead) offered by third-party review sites like Capterra and the like, having your very own Garnet and other contacts will ensure that you don't fall behind.

10. Upgrade your team

• During our marketing audits, one of our most common findings is that most young B2B SaaS companies don't know what to hire for. At least in terms of marketing.
• Leaving important skill groups unfilled, or only partially filled by under-qualified members has a direct effect on your yearly ARR growth.

11. Explore channel sales and partnerships

• Hand in hand with the tip above, as you invest in your people, think also of investing in partnerships and resellers.
• Don't do this too early. Once the market is mature enough and you're established as a primary player, it can be worth it to explore this particular demand gen avenue. But make sure this comes after the optimization of your primary demand generation channels.

12. Expand your ICP

First, make sure there is no more room for improvement in any of the following areas:

• Funnel growth: MQL quantity and quality
• CAC optimization
• Conversion rates and friction optimization
• ARPU and LTV expansion
• Churn
• CTS

Once you've exhausted your SOM in terms of both acquisitions, but also cross- and up-selling as well as cost optimization, it may be time to revisit your initial ICP filters and relax some of the criteria limitations. That could mean moving upmarket, to different geographic markets, or targeting new verticals.

Other Key SaaS Metrics Every Founder Must Know –A Glossary

ARR and MRR are critical, but they don’t exist in isolation. To fully grasp the dynamics of MRR and ARR growth, it's essential to understand related metrics that influence revenue generation, customer retention, and overall SaaS success.

• ARR: Annual Recurring Revenue. Not to be confused with the Accounting Rate of Return.
• MRR: Monthly Recurring Revenue
• LTV: Life-Time Value
• ACV: Average Contract Value OR Annual Contract Value.
• ARPU: Average Revenue Per User/Unit
• CAC: Customer Acquisition Cost
• CRO: Conversion Rate Optimization
• Churn: the annual percentage rate at which customers stop subscribing to a service
• MVP: Minimum Viable Product
• PMF: Product-Market Fit
• T2D3: Relating to ARR, Triple twice, Double thrice. SaaS growth path to hit $100M ARR and $1B valuations.
• MQL: Marketing-Qualified Lead
• SQL: Sales-Qualified Lead
• LVR: Lead velocity rate measures the growth rate in the number of MQLs your pipeline
• generates.
• TAM: Total Addressable Market
• SAM: Serviceable Available Market
• SOM: Serviceable Obtainable Market

Now that you have a comprehensive understanding of SaaS growth metrics, it’s time to put theory into practice. Partner with experts who can help you turn insights into action and accelerate your SaaS journey.

Let’s Unlock Your SaaS Growth Potential—Book a Discovery Call with Kalungi!

Let’s build your SaaS growth engine—together. Understanding MRR and ARR is just the beginning. Turning insights into action is where true growth happens. Whether you're striving for T2D3 growth or aiming to optimize churn, Kalungi’s team of SaaS marketing experts is here to help.

Ready to take the next step? Book your free discovery call with Kalungi today and let’s start scaling smarter.