Gross Revenue vs. Net Revenue

A platform fee (commonly called the "Apple tax" or "Google tax") is the commission that app store platforms charge on in-app purchases and subscriptions processed through their billing systems. Apple charges 30% on most transactions through the App Store, reduced to 15% for developers earning less than $1 million annually through the App Store Small Business Program, and 15% on all subscription renewals after the first year. Google Play charges 15% on subscription revenue and 15% on the first $1 million of non-subscription revenue, with 30% above that threshold. These platform fees have a profound impact on the unit economics of subscription apps. On a $9.99/month subscription, Apple's 30% first-year commission means the developer nets only $6.99 — and $8.49 after the rate drops to 15% in year two. This fee structure has driven significant industry interest in alternative billing mechanisms, including web-based checkout flows that process payments outside the app store ecosystem. Regulatory actions worldwide — including the EU Digital Markets Act, Japan's TPSA guidelines, and court rulings in multiple jurisdictions — are gradually expanding developers' ability to offer alternative payment options and communicate pricing outside the app, creating opportunities for meaningful margin improvement.

Subscription revenue refers to the income generated from a recurring payment model, where users pay a regular fee, often on a monthly or yearly basis, to access premium features, content, or services within the app.

Annual Recurring Revenue (ARR) is the total value of recurring subscription revenue normalized to a one-year period. For mobile subscription apps, ARR is calculated by multiplying Monthly Recurring Revenue (MRR) by 12, or by summing the annualized value of all active subscriptions. ARR is one of the most important metrics for subscription businesses because it provides a predictable baseline of revenue, making it essential for financial planning, investor reporting, and company valuation. Unlike total revenue, ARR excludes one-time purchases, refunds, and non-recurring fees, providing a cleaner view of the sustainable revenue engine. Growth-stage subscription apps track ARR trajectory closely, as consistent month-over-month ARR growth signals product-market fit and effective monetization strategy.

Monthly Recurring Revenue (MRR) is the predictable, normalized monthly revenue generated from all active subscriptions. MRR is calculated by summing the monthly-equivalent value of every active subscription — annual plans are divided by 12, weekly plans are multiplied by approximately 4.33, and monthly plans are counted at face value. MRR is the foundational financial metric for subscription app businesses because it provides a consistent, comparable measure of revenue trajectory regardless of billing cadence mix. MRR is typically broken down into component parts: New MRR (revenue from first-time subscribers), Expansion MRR (revenue from upgrades, upsells, or cross-sells), Contraction MRR (revenue lost from downgrades), Churned MRR (revenue lost from cancellations), and Reactivation MRR (revenue from previously churned subscribers who re-subscribe). Tracking these components separately reveals the underlying dynamics driving overall revenue growth or decline. A company with strong headline MRR growth but high churned MRR may be masking a retention problem with aggressive acquisition spending — an unsustainable pattern that component-level analysis makes visible.

Net Revenue Retention (NRR), also called Net Dollar Retention (NDR), measures the percentage of recurring revenue retained from existing customers over a given period, including the effects of upgrades, downgrades, and churn. An NRR of 100% means the business retains all of its existing revenue; above 100% means expansion from existing users exceeds losses from churn and downgrades. For subscription apps, NRR is a powerful indicator of product-market fit and monetization health. An app with 110% NRR is growing its revenue base by 10% from existing users alone, before any new customer acquisition — a strong signal that users find increasing value over time. NRR above 100% is often driven by users upgrading to higher-priced plans, purchasing add-ons, or re-subscribing after a lapse. Conversely, NRR below 100% indicates that the business must continuously acquire new subscribers just to maintain its current revenue level, putting pressure on user acquisition efficiency. Top-performing subscription businesses typically achieve NRR of 110–130%, and investors consider this metric one of the strongest predictors of long-term sustainable growth.