Build a detailed MRR model showing new MRR, expansion MRR, churned MRR and contraction. See your MRR waterfall, net new MRR and whether your growth engine is healthy.
The MRR waterfall is the single most important visual in SaaS financial management. It decomposes net new MRR into its four components — new, expansion, churn and contraction — making it immediately visible where growth is coming from and where revenue is leaking. A healthy SaaS business has strong new + expansion and controlled churn + contraction. A leaky bucket has high new MRR masked by hidden churn.
New MRR > Churned MRR, Expansion MRR > Contraction MRR, and ideally Expansion alone exceeds total churn (negative net churn). Net New MRR growing month-over-month. NRR above 100%. This compounds into rapid ARR growth even without aggressive new customer acquisition.
Large new MRR obscuring rising churn. Contraction accelerating (customers downgrading). NRR falling below 100%. Net new MRR shrinking even as sales volume holds. This is the "leaky bucket" — you are pouring in new revenue that drains straight back out. Fix churn before scaling acquisition.
Expansion MRR is additional recurring revenue from existing customers — through plan upgrades, seat additions, usage expansion or add-on purchases. Expansion is the highest-margin growth in SaaS because there is no CAC. Strong expansion MRR is the primary driver of NRR above 100% and indicates genuine product value. Tracking expansion MRR separately from new customer MRR is essential for understanding growth quality.
Monthly MRR growth benchmarks: 10%+/month is exceptional (doubles every 7 months); 5-10%/month is strong (120-210% annual); 2-5%/month is healthy for established SaaS (27-80% annual); below 2%/month is slow. Early-stage SaaS (sub-£100k MRR) should aim for 10-20% monthly. Growth expectations decrease with scale. A £1M MRR business growing at 5%/month is performing well; at 1% it is concerning.