mysaas_logo
Get Listed
Get Listed

Growth Accounting in SaaS

What is Growth Accounting in SaaS?

Growth Accounting is a framework used by SaaS companies to analyze the drivers of revenue growth and identify how new, expansion, and churned revenue contribute to overall growth.

It helps companies understand where growth is coming from and where attention is needed.

Why Does Growth Accounting Matter for SaaS Companies?

Growth Accounting is important because it:

  • Breaks down revenue growth by component: new customers, expansions, contractions, and churn

  • Provides visibility into growth drivers and problem areas

  • Guides strategic decision-making for product, sales, and marketing

  • Supports accurate financial forecasting

  • Helps SaaS companies optimize retention, upsells, and acquisition strategies

Understanding growth accounting allows companies to focus on revenue levers that matter most.

How is Growth Accounting Measured in SaaS?

Revenue growth is typically broken down into:

  1. New Revenue: From newly acquired customers

  2. Expansion Revenue: From upsells or cross-sells to existing customers

  3. Contraction Revenue: From downgrades in subscription plans

  4. Churned Revenue: Revenue lost from canceled subscriptions

Example:

  • Starting MRR: $50,000

  • New revenue: $10,000

  • Expansion revenue: $5,000

  • Contraction revenue: $2,000

  • Churned revenue: $3,000

Net growth = 10,000+5,000–2,000–3,000=10,00010,000 + 5,000 – 2,000 – 3,000 = 10,00010,000+5,000–2,000–3,000=10,000

What Factors Influence Growth Accounting?

  • Customer acquisition and onboarding efficiency

  • Expansion and upsell strategy

  • Churn management and retention programs

  • Product-market fit and feature adoption

  • Pricing and contract structures

How Can SaaS Companies Leverage Growth Accounting?

  • Track revenue contributions from new vs. existing customers
  • Identify areas needing retention or expansion focus
  • Use data to optimize marketing and sales investments
  • Guide product development based on revenue impact
  • Forecast future growth with better accuracy

What Are Common Mistakes in Growth Accounting?

  • Ignoring the impact of churn or contraction
  • Overlooking expansion opportunities
  • Failing to segment revenue by customer type or plan
  • Relying solely on gross revenue growth without component analysis
  • Not integrating product usage and engagement data

Why Growth Accounting is Critical for SaaS Growth

  • Revenue Insights: Understand precise growth drivers

  • Retention & Expansion: Optimize customer value and lifetime revenue

  • Data-Driven Decisions: Supports strategic planning across teams

  • Forecasting Accuracy: Predict revenue with clarity

  • Long-Term Growth: Focus on sustainable and scalable growth levers

Related SaaS Terms

  • ARR (Annual Recurring Revenue)

  • MRR (Monthly Recurring Revenue)

  • Gross Revenue Retention (GRR)

  • Net Revenue Retention (NRR)

  • Customer Expansion

In Summary

Growth Accounting helps SaaS companies analyze revenue growth by its components—new, expansion, contraction, and churn—enabling data-driven decisions, better forecasting, and sustainable growth strategies.