Expansion ARR and NRR in a Variable Pricing Environment - Part 2

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Dec 12, 2025

This discussion dives into the complexities of measuring NRR and expansion in a variable pricing landscape. The hosts argue that traditional ARR metrics are no longer reliable and advocate for using spend and usage data as indicators of revenue health. They explore how to calculate implied ARR and explain the significance of longer measurement intervals to smooth out volatility. Insights into customer behaviors reveal the importance of sequential expansion and accurate churn prediction, reshaping how companies approach financial forecasting.

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INSIGHT

ARR Loses Its Contractual Certainty

Variable pricing breaks the old ARR contract-based model and forces teams to use revenue (spend) as the truth.
Implied ARR (e.g., 4x quarterly revenue) is a proxy, but only when it approximates future revenue trends.

ADVICE

Generate Conceptual Invoices From Usage

Start with usage data and run it through each customer's pricing model to generate conceptual invoices.
Use those invoices (spend) as the primary input for ARR proxies and revenue analysis.

INSIGHT

Longer Windows Dampen Volatility

Short-interval proxies (like 12x last month) can drastically misstate annualized revenue for volatile customers.
Quarterly or longer intervals damp volatility and better approximate forward revenue.

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In this episode of The Metrics Brothers, Ray “Growth” Rike and Dave “CAC” Kellogg take on one of the biggest challenges facing modern SaaS and AI-Native companies: how to measure NRR and expansion when pricing isn’t fixed anymore.

With the rise of usage-based, user-based-but-variable, and outcome-based pricing, the traditional world of ARR - long the backbone of SaaS metrics has been turned on its head. Contracts no longer tell the story. Spend does.

Dave breaks down how to rethink ARR proxies using quarterly or monthly revenue (“implied ARR”) and why longer intervals help smooth volatility, especially for “humpback” or highly seasonal customers whose spend fluctuates dramatically month-to-month.

Ray digs into what NRR was originally designed to measure and why many teams misinterpret it—especially in variable-pricing environments where a backward-looking metric can’t serve as a forward-looking forecast. The brothers explain why sequential expansion, usage behavior, and real spend patterns now matter far more than traditional ARR bridges.

Key topics include:

Why ARR no longer maps cleanly to revenue in a variable pricing world
How to calculate implied ARR using quarterly or monthly software revenue
Why NRR must be interpreted differently—and why survivor bias still matters
How volatility and seasonality distort short-interval metrics
Why usage is the real leading indicator, not invoices
How to rethink “expansion ARR” when base + variable spend changes continuously

Packed with examples, including sinusoidal customers, misleading GRR math, and the dangers of splitting base versus variable revenue, this episode gives operators and investors a practical framework for measuring customer growth when pricing is anything but predictable.

A must-listen for CFOs, RevOps leaders, and anyone trying to modernize SaaS metrics for the AI era.

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