6 CHAPTER 1 METRICS AND PERFORMANCE MEASUREMENTS Recurring revenue can also be measured at the account and user level. Metric Description Formula ARPA Average Revenue Per Account (ARPA) measures how much Total ARR recurring revenue one of the company’s customers generates on average. ARPA can be measured on a monthly, quarterly, and Total # of annual basis, making it necessary to specify which it refers to customers accounts when presenting the metric. ARPU Average Revenue Per User (ARPU) is similar to ARPA, though instead of the average revenue per customer account, it Total ARR measures the average revenue per user since one customer account can have multiple users. For consumer software, ARPA is Total # of users usually equal to ARPU, as the customer is the same as the user. Change ARR to MRR if you are comparing changes in recurring revenue between months instead of years. Retention rates Retention rates are among the most important metrics as they are able to explain everything from product-market-fit to sales performance and customer satisfaction. These rates measure how good a company is at retaining customers and recurring revenue after a certain period and are calculated by splitting customers into smaller groups called "cohorts" based on when they signed up, by month, quarter, or year. In addition to analyzing the company's customers across time-based cohorts, it can be helpful to segment them further by aspects such as customer size, industry, or region. For example, if enterprises in the U.S. show better retention rates than SMBs in the Nordics, this insight could inform the company's sales strategy and ideal customer profile (ICP). SUMMARY TABLE OF RETENTION RATE DEFINITIONS Metric Description Formula Customer/Logo Logo retention Logo Retention is the measure of how large a # of customers remaining in cohort share of customers in a cohort remains after a Initial # of customers in cohort certain period. Logo churn Churn Rate is the inverse of logo retention and instead measures how large a share of customers 100% − logo retention in a cohort has left after a certain period. Revenue Gross revenue Gross Revenue Retention is the measure of how Initial ARR in cohort retention much of the initially acquired recurring revenue is - Contraction ARR remaining in a cohort after a certain period. - Churned ARR Initial ARR in cohort Net revenue Net Revenue Retention is the measure of how Initial ARR in cohort retention much recurring revenue a cohort generates + Expansion ARR after a certain period relative to how much was - Contraction ARR initially acquired. - Churned ARR Initial ARR in cohort