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Understanding Startup Revenue: A Simple Guide for New Founders

  • gandhinath0
  • Apr 4
  • 3 min read

Updated: Apr 11

"So, walk me through your revenue numbers." 

The words from an investor that can make any founder sweat! I learned this the hard way during my first fundraising pitch, and today, I share a simple math that you will find useful to avoid embarrassing mistake... that mistake almost cost me a crucial investment round.


Financial Reports
Financial Reports

Back in 2019, I launched TechGigs.ai, a platform connecting tech freelancers with jobs. The business model was simple and straightforward.

Freelancer Level / Tier

Monthly Fee

Placement Margin

Extras

Basic

$0

Basic job access with 25% service fee

Buy mentoring/training tokens à la carte

Pro

$29.99

Premium features + 20% service fee

5 tokens, job board access, Office 365

VIP

$49.99

All features + 15% service fee

20 tokens, niche community access, gig analysis

Simple enough, right? That's what I thought until I had to present our numbers to investors.

Here's where I messed up: I lumped everything together as "recurring revenue." The monthly subscriptions, the service fees from job placements, even our one-time training packages – I counted it all.


Big mistake.


The Truth About Recurring Revenue

Think of this significant number like a Netflix subscription – it's predictable, consistent, and happens automatically.


In startup terms, we track this two ways:

  • Monthly Recurring Revenue (MRR): What you can count on each month

  • Annual Recurring Revenue (ARR): Your yearly predictable income


So you might be wondering - what counts and what doesn't into Recurring Revenue?

Take a look at the itemization using my techgigs.ai example.

Counts as Recurring Revenue

Doesn't Count as Recurring Revenue

Monthly subscriptions

Service fees

Annual memberships

One-time purchases

Regular platform fees

Service Engineering Fees

I grouped all of it into ARR which was incorrect. Only recurring, subscription-based revenue counts. So, this comes to the question of when to use MRR and ARR


Two numbers can measure the same yet for a different purpose

As you can see, both MRR and ARR measure predictable revenue. But they serve different purposes.


If you're just starting out (making under $300K in recurring revenue), stick with MRR. It helps you track growth month by month and spot problems quickly.


Once you hit the big leagues ($1M+ in recurring revenue), ARR becomes your go-to number for investors and planning.


Remember, MRR is your dashboard. ARR is your headline.

Metric

When to Use It

What It Shows

MRR

Early-stage, monthly trends

Growth, churn, retention

ARR

Planning, investor reporting

High-level recurring revenue

Formula:

ARR = MRR × 12

MRR tracks behavior. ARR tells your long-term story.

Adding AI to the Mix without messing up your revenue metrics? Here's What Changes

Using my TechGigs startup as an example, here's how to apply and understand about AI features and revenue:


Core AI Integration Ideas -

• AI job matching: Auto-submits profiles to matching opportunities

• AI resume optimization: Aligns with ATS requirements while preserving actual experience


Now lets draw a Revenue Classification Base Guide as to what counts as ARR

Counts as ARR

Counts as Experimental Revenue

  • MRR-AI features bundled in monthly subscriptions

  • Fixed monthly AI usage limits (example, Canva's Magic Write in Pro plans)

  • Pay-per-use AI features ($5/resume optimization)

  • Backend costs from OpenAI/Claude usage


Takeaways:

AI feature launches will spike revenue, then normalize. Expect uneven growth. Don't mistake these spikes for stable recurring revenue - it'll mess up your growth projections and investor discussions.


Rule of the thumb - If it's not guaranteed to repeat next month, it's not recurring revenue. Everything else is just extra income – nice to have, but different.


Want to get this right from the start? Here's what you can do today:

  1. List all your revenue streams

  2. Mark which ones happen automatically each month

  3. Only count those as recurring revenue


Not Sure What Counts as ARR?

I offer free 30-minute consultations to help you organize your revenue model before your next investor pitch. Let's make sure your numbers tell the right story.




Use our free diagnostic tool to gain insights and identify areas for improvement.




Recommended Reading:

  • Lean Analytics by Alistair Croll & Ben Yoskovitz

  • Running Lean by Ash Maurya

  • Trajectory: Startup by Dave Parker

  • AARRR Metrics – Dave McClure→ Original blog post: Startup Metrics for Pirates





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