A UK SaaS Leader’s Guide: Revenue (How to Calculate)

Calculating revenue in a SaaS business isn’t as simple as checking your bank balance.

Anyone can quote the basic formula: Revenue = Sales Price × Number of Units Sold. But for subscription businesses, that’s just scratching the surface. Real insight comes from separating one-time cash movements from predictable recurring revenue — and knowing which “revenue” number you’re looking at.

Your Foundational SaaS Revenue Calculation Framework

To get a true read on financial health, look past top-line sales figures.

For any UK B2B SaaS operator, the journey starts with one critical distinction: the cash you’ve collected versus the revenue you’ve actually earned. This isn’t just an accounting detail — it’s foundational to sustainable growth.

This leads to the two metrics that form the bedrock of subscription businesses:

• Monthly Recurring Revenue (MRR)
• Annual Recurring Revenue (ARR)

These show the predictable, repeatable revenue you can count on — stripping out one-off fees like setup or professional services.

Billed vs recognised revenue (IFRS 15)

Understanding the difference between what you bill and what you recognise as revenue is non-negotiable, especially under IFRS 15.

In simple terms:

• Billed revenue = the total amount you invoice up front
• Recognised revenue = the portion you earn over time as you deliver the service

Example: a customer pays £1,200 up front in January for an annual plan.

• Billed revenue: £1,200 in January
• Recognised revenue: £100/month from January through December

That cash is great for the bank. Recognising £100/month is what gives you an accurate picture of ongoing performance.

Connecting revenue to SaaS growth metrics

Accurate revenue calculations make your growth KPIs real.

Your Trial-to-Paid Conversion Rate drives New MRR. If you improve onboarding and lift conversion by 5%, you’re not just getting a one-time bump — you’re compounding future MRR.

A 5% lift in trial conversion doesn’t just add customers; it compounds in your MRR.

Core SaaS revenue metrics at a glance

Breaking Down Your Monthly Recurring Revenue (MRR)

MRR is the lifeblood of a SaaS business. It’s predictable and essential for measuring momentum.

But calculating it properly goes beyond customers × average price. To understand what’s really happening, you need component-level MRR.

The core components of MRR

Segment MRR into three streams:

• New MRR: revenue from customers acquired in a given month
• Expansion MRR: extra revenue from existing customers (upgrades, add-ons)
• Churned MRR: revenue lost from cancellations or downgrades

A practical example of calculating MRR

Your SaaS has three tiers: Basic £50/month, Pro £150/month, Enterprise £500/month.

An Enterprise customer signs a £4,800 annual contract. That counts as £400 MRR.

In a given month:

• 10 new Basic customers (+£500 New MRR)
• 2 new Pro customers (+£300 New MRR)
• 5 Basic customers upgrade to Pro (+£500 Expansion MRR)
• 3 Basic customers cancel (−£150 Churned MRR)
• 1 Pro customer downgrades to Basic (−£100 Churned MRR)

Net New MRR = (£500 + £300) + £500 − (£150 + £100) = £550.

How to track MRR in a spreadsheet

If you’re early-stage, a spreadsheet is fine — as long as you track components.

Log each change with columns like: CustomerID, Date, Amount, and TransactionType (New Business, Upgrade, Downgrade, Cancellation).

Example SUMIFS for Expansion MRR in May:

=SUMIFS(C:C, D:D, "Upgrade", B:B, ">=01/05/2024", B:B, "<=31/05/2024")

Tie MRR to your trial conversion rate

Trial conversion is a lever for New MRR.

At 5% conversion with 200 trials, you get 10 customers. Improve onboarding to 7%, and you get 14 customers — a 40% increase on the same trial volume.

To make conversion improvements stick, you need to track retention early too. Start here: Define Customer Retention.

Billed Revenue vs Recognised Revenue (The Annual Plan Dilemma)

A common trap is equating cash in the bank with actual performance.

Billed revenue is what you invoice up front. Recognised revenue is what you earn as you deliver the service (under IFRS 15).

Example: a customer pays £12,000 for an annual plan on January 1st.

• Billed revenue: £12,000 in January
• Recognised revenue: £1,000 in January (with £11,000 deferred)

Deferred revenue sits on your balance sheet until you deliver each month.

Cash is a snapshot. Recognised revenue is the trend. You need both.

A practical plan for accurate recognition

1. Set up a deferred revenue account: log annual payments as a liability.
2. Create a recognition schedule: map revenue you earn monthly (e.g., £12,000/year = £1,000/month).
3. Book monthly entries: reduce Deferred Revenue and increase Recognised Revenue each month.

This discipline turns reports into a strategic tool for growth planning.

Getting to Grips with Cohort Revenue Analysis

Total revenue can hide retention issues. Cohorts show what’s happening under the hood.

A cohort is a group of customers who share a trait (often the month they became paying customers). Cohort analysis helps you understand revenue retention — and it ties directly into Net Revenue Retention (NRR).

Tracking monthly revenue changes

For each cohort, track month-over-month:

• Expansion MRR (upgrades/add-ons)
• Churned MRR (cancellations/downgrades)
• Ending MRR (Starting + Expansion − Churn)

Then compute NRR:

NRR = (Starting MRR + Expansion MRR - Churned MRR) / Starting MRR

If a cohort starts at £10,000, adds £1,500, and loses £500:

(£10,000 + £1,500 - £500) / £10,000 = 1.10 → 110% NRR

Above 100% means your customer base is expanding faster than it churns.

Example cohort table

For cohort thinking across the whole journey, see: Mastering the B2B SaaS Customer Life Cycle.

Calculating Advanced Metrics: ARPU, LTV, and ACV

Once you master recurring and recognised revenue, layer in strategic metrics: ARPU, LTV, and ACV.

Untangling ARPU, LTV, and ACV

• ARPU: total MRR ÷ active customers
• ACV: average annualised revenue per contract
• LTV: projected value per customer over their lifetime

ARPU is a snapshot. ACV is contract size. LTV is the long-term forecast.

A practical calculation example

If you have 200 customers and £20,000 MRR:

• ARPU = £20,000 / 200 = £100

If monthly revenue churn is 4%:

• LTV (simple) = £100 / 0.04 = £2,500

For a deeper walkthrough (including cohorts and predictive models), see: How to Calculate Lifetime Value of a Customer.

LTV:CAC (a sanity check)

A common benchmark is 3:1 (in gross margin terms). If CAC is £800:

£2,500 / £800 = 3.125:1

Common Revenue Calculation Pitfalls to Avoid

Small errors compound — and they distort the metrics you rely on to make decisions.

Mishandling discounts and credits

If a customer pays £100/month with a 20% discount, record £80 as MRR from day one. Otherwise your MRR (and churn) becomes noisy when the discount ends.

Clean-up checklist

• Tag one-time fees: setup/training/pro services are non-recurring — keep them out of MRR/ARR.
• Exclude VAT: report revenue net of VAT (you collect it on behalf of HMRC).
• Standardise currency conversion: convert foreign transactions consistently to avoid false growth/decline signals.

Your SaaS Revenue Questions, Answered

How should I handle usage-based billing in MRR?

Split fixed and variable components.

• Count the fixed subscription portion as MRR.
• Forecast variable usage using a trailing 3-month average.
• Report both for clarity.

What’s the difference between ARR and ACV?

• ARR is all recurring subscriptions annualised (MRR × 12).
• ACV is the average annualised revenue per contract.

When should we move from spreadsheets to a revenue tool?

Spreadsheets work early on. Once you hit 20–30 customers or deal with complex contract types, they become error-prone.

At that point, consider a billing/subscription platform (e.g., Stripe Billing, Chargebee) to reduce errors and improve compliance.

The EngageKit View: Turn Revenue Math Into Revenue Momentum

Revenue reporting is necessary. Revenue growth requires a system.

EngageKit helps you translate product signals into predictable MRR growth:

• Improve trial-to-paid conversion: guide users to value milestones automatically.
• Reduce churned MRR: detect stalls early and intervene before customers disengage.
• Increase expansion MRR: drive adoption of features that correlate with upgrades.

If you want revenue you can forecast, start by making your trial-to-value journey measurable — and repeatable.