Proxy on proxy: how the SaaS industry lost itself in its own metrics

Denis Martyntsev once brilliantly roasted ARR in his Telegram channel: take your monthly revenue, multiply by 12 — congratulations, you now have "annual recurring revenue." The money hasn't hit your account yet, but hey, the metric exists. He even suggested going bigger — just calculate TARR (Ten Annual Recurring Revenue), a full decade of projected revenue. If we're fantasizing anyway, why stop at 12 months?

For the uninitiated: ARR (Annual Recurring Revenue) is the north star metric of SaaS. It's your projected subscription revenue over the next 12 months — the number companies get valued on and raise investment against.

I laughed it off at the time. Then I came across a video by Ben Murray (not Bill Murray, lol) from The SaaS CFO. Completely straight-faced, he breaks down a metric called "Cost of ARR" — how many real dollars you need to burn to generate one dollar of ARR.

Let that sink in for a second.

ARR is a proxy. Imaginary money. Cost of ARR is the cost of acquiring one imaginary dollar. A proxy on top of a proxy.

And this isn't satire. Ben calls it "one of my favorite metrics." His favorite metric is the cost of a phantom.

Interesting times we live in. Turns out there's actually an industry median for this: $1.40 spent per $1 of ARR. Top performers: $1.17. The worst: $2.82. The best SaaS companies in the world are spending a dollar seventeen of real money on a dollar that doesn't exist yet. And this is considered an industry benchmark.

Oh, and there are three versions of the metric (blended, new logo, expansion) and benchmarks across five ACV segments. Segmentation of a proxy on top of a proxy. Are we serious right now?

I'm an analyst — I live and breathe metrics. But when an entire industry starts building benchmarks on top of proxies on top of proxies, I have to ask: it's turtles all the way down, isn't it? Does it ever end?

Denis was joking about TARR. But Cost of ARR is TARR that forgot it was a joke.

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