SoF Standard Definitions.

The definitions behind the metrics operators and investors rely on. Versioned, and free to adopt.

v1.0 Updated Sep 18, 2026

A metric is a number plus the definition that produced it, and the definition is where the disagreement lives. Two competent analysts, handed the same customer-level revenue file, will report different net revenue retention. Neither made an error. One counted usage revenue and the other did not, or one treated a three-month billing gap as a pause and the other as a churn followed by a win-back. Both readings are defensible. What separates them is whether the choice was stated alongside the number.

This reference exists to make the definition explicit. Each term states one measure, the exact method behind it, the choices that move it, the ways it is commonly misread, and — the section most standards omit — what the measure cannot tell you no matter how carefully it is computed.

How to read a definition here

Every term carries the same spine:

  • The standard — a single normative statement. If you read nothing else, read this.
  • What it measures — the question the metric answers, and for whom.
  • How it is computed — the exact method, in the order the computation happens.
  • A worked example — small, arithmetic, checkable by hand.
  • The choices that change the number — the forks, each named with the switch that governs it.
  • How it is misread — the failure modes that show up in real diligence.
  • What it cannot tell you — the honest boundary.

Wherever a definition forks, the standard names the fork with a switch and gives it a default: reactivation_window_months = 3 means a billing gap of three months or less is a pause; nrr.usage_inclusive = true means usage revenue counts in retention. A spreadsheet, a BI tool, or a metrics product exposes the same switches under the same names. Compute under the defaults and you can say “NRR under SoF Standard Definitions v1.0” and a reader knows every choice you made. Change a default, and you cite the version plus the switch you changed.

The terms 17

Foundations Who is a customer, what counts as recurring, and the base measures everything else is built on.

Customer — the measured unit A customer is the commercial relationship, resolved from its billing accounts, and only paying customers are counted. Revenue types Only committed subscription revenue is recurring. Usage, services and one-time fees are real revenue, but never MRR. Monthly recurring revenue MRR is what a customer's subscription pays per month, taken at month end, if nothing changes. MRR Annual recurring revenue ARR is this month's MRR times twelve: a run rate, not a forecast and not last year's revenue. ARR

Movement and retention How revenue moves month to month, and what the base is worth now versus then.

The movement taxonomy Every change in a customer's MRR is exactly one of five movements, and they add up to the closing balance without a plug. Pause, churn, and the reactivation window A short billing gap that closes is a pause. A long one is churn and a win-back. A gap still open at the cutoff is judged separately. Net revenue retention NRR asks what last year's customers are worth this year, expansion included and new customers excluded. NRR Gross revenue retention GRR is NRR with every customer capped at what it paid at the start, so growth cannot hide leakage. GRR Cohort retention Cohort retention follows each vintage of customers on its own curve, measured at the end of each period against what they paid when they joined. Churn analytics Churn is counted in the first month a customer pays nothing, and reported four ways: by logo, by dollar, by tenure, and by survival.

Structure and quality How revenue is distributed, whether it ties, and how much the number depends on the rule.

Concentration Concentration measures how much of the business depends on how few customers, on resolved parents, by top-N share and HHI. Growth accounting Growth accounting shows how a business grew, not just how fast: the quick ratio and the mix of new, expansion and reactivation. ACV and ARPA ARPA is average revenue per account. The standard reports the whole distribution, because the average describes almost no customer. Foreign exchange Revenue converts at the month's average rate, and currency-driven movements are tagged so the constant-currency view can remove them. Revenue tie-out The customer file counts only once its recognized revenue agrees with the P&L, month by month, with billing timing shown separately. Definitional sensitivity The same data yields a family of NRRs. The spread between them is a finding about the business, not an error. The register Every assumption applied and every anomaly found is logged, so a reader can argue with a premise instead of discovering it later.

What “locked” means

Some choices in this standard are marked locked. A locked default can be overridden — every choice can be overridden — but doing so produces a variant version rather than a silent restatement. Locking is not a claim that the alternative is wrong. It is a claim that the difference is material enough that it must never move without leaving a mark.

Adopt it

The standard is product-neutral and free to use. To adopt it, compute under the defaults, cite sof-v1.0 alongside the number, and name any switch you changed.

  • Quick reference — every term's plain definition, formula and defaults on one page.
  • Machine-readable spec — every term, switch, default and locked flag, versioned.
  • Print edition — the whole standard on one page — or the PDF of v1.0 for a data room.
  • Changelog — every version, what changed, and why.
  • Cite it as SoF Standard Definitions v1.0, Strategy of Finance, https://www.strategyoffinance.com/standards/ — or name the term: “NRR as defined in SoF Standard Definitions v1.0.”