What is the most important KPI for a SaaS business and why?
A core FP&A interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Net Revenue Retention (NRR) is the most important KPI for SaaS because it measures the revenue growth from existing customers after accounting for churn, upgrades, and downgrades. An NRR above 100% indicates that existing customers are expanding faster than churn, driving organic growth. It's a leading indicator of long-term value and profitability. Other KPIs like CAC and LTV are important, but NRR captures the health of the recurring revenue base.
WHAT INTERVIEWERS LISTEN FOR
- ✓NRR measures revenue retention and expansion from existing customers.
- ✓Above 100% indicates net growth from the base.
- ✓Leading indicator of long-term value.
- ✓More comprehensive than gross churn alone.
COMMON MISTAKES
- ✗Saying MRR or ARR without explaining why.
- ✗Ignoring the difference between gross and net retention.
- ✗Focusing on customer count instead of revenue.
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