SaaS metrics that matter: ARR, burn and runway

Subscription businesses are judged on a small set of metrics. Investors and lenders compare them across companies, so definitions matter as much as the numbers. Here is how to calculate the core three consistently.

Annual recurring revenue (ARR)

ARR is the annualised value of contracted recurring subscriptions at a point in time. Include subscription fees under active contracts. Exclude one-off implementation, setup and consulting fees, and do not count signed contracts that have not started unless you show them separately as contracted but not yet live.

• Track the movement each month: new, expansion, contraction and churned ARR.
• Reconcile ARR to recognised subscription revenue in the books.

Burn

Gross burn is total cash spent in a month. Net burn is cash spent minus cash received, the amount your bank balance actually falls. Use cash figures from the bank, not profit and loss figures, because annual prepayments and payment terms can make the two very different.

Runway

Runway is current cash divided by average monthly net burn, expressed in months. Show it on a base case and a downside case, and include committed changes such as planned hires. A runway that only works if growth goes to plan is not a safe runway.

Investors test your metrics against your books. If they do not reconcile, they trust neither.

Keep definitions written down

Write a short metrics definition sheet and use it every month. Consistency over time is what makes trends credible, and it shortens due diligence when you raise.