Does Expansion MRR or ARR Include Renewals? | SaaS Metrics School | Renewals Welcome to another episode of SaaS Metrics School! In today’s session, we’re diving into a question that many SaaS founders, CFOs, and finance teams encounter: Does expansion MRR include renewals? This topic can get confusing, but we’re breaking it down to clarify how bookings, renewals, and expansion all work together in SaaS businesses.
This episode is inspired by a recent student question from my SaaS Metrics Foundation course. We’ll cover key insights into bookings and renewals, and more importantly, how to track them accurately in your SaaS metrics.
Understanding Bookings and Renewals
Let’s start with the basics: When is a renewal considered a booking? When I talk about bookings, I’m referring to executed contracts with customers. In most cases, renewals qualify as bookings when they include net expansion. For instance, if a customer was paying $10,000 a year and renews at $13,000, the additional $3,000 is the expansion booking that goes into your CRM system.
This net expansion impacts your metrics, invoicing, and the overall MRR schedule. The renewal in this case not only renews the current revenue but also contributes to your expansion MRR, affecting important metrics like net dollar retention (NDR) and gross revenue retention (GRR).
When is a Renewal Not a Booking?
On the other hand, if a customer renews at the same rate – for example, paying $10,000 one year and renewing at the same $10,000 for the next year – this is not considered an expansion booking. It’s a flat renewal that counts towards your renewal rate but doesn’t impact your revenue forecast or your retention metrics like NDR or ARR growth.
In this case, while you do track the renewal, it’s not a booking because there’s no net expansion. It’s a flat continuation of the previous contract, which means your MRR schedule remains unchanged.
Renewals & Expansion MRR – How They Interact
So, do renewals affect expansion MRR? As we’ve discussed, they do when there is net expansion. When a renewal involves a price increase, that difference is reflected as expansion MRR, which ultimately boosts your net dollar retention. If the renewal is flat, your MRR schedule remains steady with no impact on expansion MRR, but the renewal still helps maintain your retention rates.
It’s essential to keep these distinctions clear in your SaaS business, especially as you manage complex data flows in your CRM system, billing processes, and MRR forecasting.
Importance of Defining Bookings and Renewals
Understanding when a renewal is a booking and when it isn’t is crucial for maintaining accurate financial forecasting. Misreporting these numbers can lead to faulty revenue projections and skewed SaaS metrics, such as churn, expansion revenue, and overall growth rate. Knowing how to classify renewals, expansion bookings, and recurring revenue correctly ensures your business stays on track.
Final Thoughts
I hope this episode clears up some confusion around renewals and expansion MRR. By understanding the relationship between bookings, renewals, and net expansion, you can better track and manage these key metrics in your SaaS business. If you found this episode helpful, I’d appreciate a five-star rating and review!
If you’re looking to dive deeper into topics like this, make sure to check out my SaaS Metrics Foundation course, where we cover everything from basic metrics to advanced analysis, helping you master the financial side of your SaaS company.
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