The five movements under your revenue line

Your MRR went from €140,200 to €141,900. Growth of €1,700, or 1.2%. That is the number named in the board meeting, and it is the least informative number you have.

Because that same €1,700 can describe two completely different months. In one, a quiet €2,000 came in and €300 leaked away. In the other, €5,000 came in and €3,300 vanished. The first month is healthy. The second is a business buying growth to mask a loss.

The instrument that pulls those two apart is called the MRR bridge.

The five items

Every change in your recurring revenue falls into exactly one of five categories. MRR stands for Monthly Recurring Revenue; how you build it up is covered in this article.

• Existing. The base that simply runs on: customers who were there last month, are still there this month, and pay the same. This is usually by far the largest item and the dullest, exactly as it should be.
• New. Recurring revenue from customers who were not there last month.
• Expansion. Customers who were already there and started taking more: extra users, a higher plan, an added module.
• Contraction. Customers who are still there but take less. Downgrades, fewer users, a module removed.
• Churn. Customers who have left entirely.

These five add up exactly to your revenue line. That is the whole reason they exist: they are a decomposition, not an extra report.

The arithmetic

Now you see it. Two thirds of everything that came in leaked straight back out. And the costs you incurred for that €5,000 (marketing, sales, onboarding) sit in a completely different place in your bookkeeping than the €3,300 that escaped it. Those two never meet anywhere, so the ratio between them never becomes visible.

How you place each customer in one of the five

This is the step that is the work. You lay this month's MRR per customer next to last month's, and classify the difference:

Four things that go wrong here:

• A customer cannot be in two categories at once. Anyone who expands and contracts in the same month counts for the net. Otherwise you count movement twice and your bridge no longer adds up to your revenue line.
• A customer who leaves and comes back is new, not existing. Unless you apply a deliberate boundary, for example: returning within three months counts as reactivation. Fix that, whichever way you go.
• Price indexation is not expansion. If you index all contracts by 3%, your MRR grows without a single customer taking anything extra. Count that as expansion and your retention looks structurally better than it is. Set indexation apart, or keep it under existing.
• A temporary discount is not contraction. A customer with three months at 20% off has not contracted. Book that as contraction and three months later you get an artificial expansion when the discount ends, and your retention figure is polluted for two quarters.

What the bridge tells you, and the revenue line does not

Whether your growth is bought or earned. A bridge in which expansion is larger than churn describes a business that grows without sales. A bridge in which new is the only positive item describes a business that has to start over every month.

Where your next euro pays off most. If churn is your largest negative item, then every euro in retention is worth more than a euro in acquisition, otherwise you are filling a leak. If contraction is larger than churn, your problem is not with leaving customers but with customers quietly scaling down, and that is a completely different conversation.

Whether one large customer makes your month. A bridge with €4,000 new from one deal looks identical to a bridge with €4,000 from twelve deals. Until next month.

The order in which you look at it

Do not look at the total first. Look in this order:

1. Contraction plus churn. How much leaks away? That number determines how hard your acquisition has to run before anything is left.
2. Expansion against that amount. Does your existing base offset itself? If expansion is larger than contraction plus churn, your base grows by itself. That is the same question as net retention, seen from the other side.
3. New. Only now. What sales brought in is the last layer, not the first.
4. The total. That is now a conclusion instead of a number.

Most businesses do this exactly the other way round, and therefore see nothing for four months.

Why this does not roll out of your accounting

All five items are in your bookkeeping. The customers are in there, the amounts are in there, the movements are in there.

And yet you cannot get the bridge out of it, for one reason: none of the five is a property of a booking. All five are a property of the difference between two bookings for the same customer in two consecutive months. An accounting system records events, not comparisons between events.

That means someone has to lay the whole customer list next to last month's again every month, determine the difference per customer, and classify that difference by rules recorded nowhere. At two hundred customers that is a morning. At five hundred it is a day. And the file that comes out is out of date the moment it is finished.

The bridge is the heart of the argument in the whitepaper The blind spot in Exact Online: that your accounting knows every point but records the line those points form nowhere, and that this is not a shortcoming but a design choice.