Growth Accounting
A framework that decomposes net user or revenue growth into its constituent parts (new, resurrected, retained, and churned), revealing the underlying dynamics that drive the top-line number.
Growth accounting reveals the truth behind aggregate growth metrics. A product growing its user base by 10% monthly could be acquiring 30% new users and losing 20% to churn (unsustainable) or acquiring 12% and losing only 2% (healthy). The aggregate number looks the same, but the underlying dynamics tell completely different stories about product health and growth sustainability.
The framework classifies users in each period into four groups: new (first-time users), retained (active in both current and previous period), resurrected (returning after being inactive), and churned (active previously but not currently). Revenue growth accounting similarly decomposes MRR into new, expansion, contraction, reactivation, and churn components.
This decomposition is essential for diagnosing growth problems and prioritizing investments. If new user growth is strong but retention is declining, the priority is product improvement, not acquisition scaling. If retention is stable but new user growth is slowing, the priority is new channels or market expansion. Growth accounting provides the diagnostic precision to avoid the common mistake of pouring resources into acquisition when the real problem is retention, or vice versa.
Related Terms
Growth Loop
A self-reinforcing cycle where each cohort of users generates inputs (data, content, referrals) that attract the next cohort, creating compounding growth.
Churn
The rate at which customers stop using or paying for a product over a given period, typically measured as monthly or annual churn percentage.
Activation Rate
The percentage of new signups who complete a key action (the 'aha moment') that correlates with long-term retention and product value realization.
Product-Led Growth (PLG)
A go-to-market strategy where the product itself drives acquisition, activation, and expansion through self-serve experiences rather than sales-led motions.
Viral Coefficient (K-Factor)
The average number of new users each existing user brings to the product, where a K-factor above 1.0 indicates self-sustaining viral growth.
Net Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn — where 100%+ indicates growth without new customers.