The fairest comparison uses the same fiscal period, the same revenue scope, and each company’s own definitions before you look at percentages. Revenue growth shows how quickly the business is expanding; gross margin shows the economics of delivering that revenue; and customer and net revenue retention show whether the existing customer base stays and grows. Read the three together, then adjust for customer concentration, contract structure, usage-based billing, and whether the company is an AI-first vendor or a diversified cloud business.
Start with a like-for-like comparison
Put every company into a scorecard with the reporting period, revenue scope, growth rate, gross margin, retention definition, cohort, and important caveats beside the number. A percentage without those labels can create a false ranking. A company-wide result should not be compared with a single product line, and recognized revenue should not be mixed with annual recurring revenue (ARR).
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| Axis | What to compare | Questions to ask |
|---|---|---|
| Revenue growth | Reported revenue and year-over-year growth for the same fiscal period | Is the figure company-wide or a segment? How much came from usage, pricing, acquisitions, new customers, or expansion? |
| Gross margin | Gross profit divided by revenue, plus the direction over time | Are cloud, inference, hosting, support, or other delivery costs rising? Does management connect the change to AI infrastructure or efficiency? |
| Customer retention | Logo or customer retention, when disclosed | Does the measure count customers or dollars? What cohort and time window does it use? |
| Net revenue retention | Revenue from the opening customer cohort after churn, contraction, and expansion | Are usage changes, price changes, migrations, or added licenses included? Is expansion offsetting churn? |
| Quality and limits | Customer concentration, contract mix, definitions, and reporting period | Could one large customer move the percentage materially? Are ARR assumptions suitable for monthly or usage-based revenue? |
Write the period in full, such as “fiscal year ended June 30, 2025,” rather than relying on a year label that may conceal different year-ends. Note the currency and whether growth is reported or constant-currency. If a company reports both consolidated and AI-related figures, keep them in separate rows.
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Revenue growth measures expansion during the period
Year-over-year revenue growth is calculated as (current-period revenue − prior-period revenue) ÷ prior-period revenue. It captures all recognized revenue, not only recurring subscriptions. Growth can come from more customers, larger contracts, additional seats, higher prices, greater usage, acquisitions, or a change in the mix of products and services. Read the disclosed drivers instead of treating the percentage as a quality score.
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Growth is most useful when the numerator and denominator have the same scope. A 25% increase in an AI product line does not establish that the company’s total business grew 25%. Conversely, a diversified company may be growing an AI cloud segment quickly while slower businesses dilute the consolidated rate.
Gross margin tests delivery economics
Gross margin is gross profit ÷ revenue. Gross profit is revenue minus the costs classified as cost of revenue (also called cost of sales). The classification differs by company, so read the filing’s description of cloud hosting, inference, data-center capacity, support, implementation, third-party services, and other delivery costs.
AI workloads can pressure cloud gross margins because model training and inference consume expensive compute. A falling margin during rapid growth is not automatically a failure: a company may be deliberately adding capacity ahead of demand. The important questions are whether management identifies a temporary investment, whether efficiency gains are appearing, and whether the trend differs between the AI product and the rest of the business. Gross margin is not operating margin; sales, research, administration, stock compensation, and other operating expenses sit below gross profit.
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Retention can count customers or dollars
Customer, or logo, retention asks how many customers from a starting cohort remain at the end of the measurement period. It says nothing directly about whether the remaining customers spend more or less. A business can retain 90% of its logos while losing substantial revenue if the departed customers were large.
Gross revenue retention (GRR), when disclosed, focuses on the starting cohort’s revenue after churn and contraction and normally excludes expansion. Net revenue retention (NRR) adds expansion from the same cohort. A generic NRR expression is (opening cohort revenue − churn − contraction + expansion) ÷ opening cohort revenue. NRR above 100% means expansion more than offset churn and contraction; it does not mean every customer renewed.
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Definitions are company-specific. Check the cohort date, 12-month or other time window, treatment of acquisitions, migrations, price changes, usage, added licenses, and whether the measure is based on ARR, contracted revenue, or recognized revenue. Compare formulas before comparing percentages.
Normalize the data before ranking companies
Match fiscal periods
Use the same twelve-month window where possible. If year-ends differ, make the mismatch explicit rather than presenting the figures as a single-period peer set. Quarterly numbers can be distorted by renewals, large implementations, or seasonal usage, so compare several quarters when the business is lumpy.
Match the reporting scope
Label each figure as consolidated, cloud segment, AI product, geography, or another scope. Microsoft’s consolidated results, for example, include a broad technology portfolio and are not a pure-play AI software benchmark. A segment comparison can be informative, but it should not be combined with a company-wide comparison without a clear label.
Separate recognized revenue from ARR
Revenue is recognized under accounting rules. ARR is a run-rate estimate based on recurring contracts or subscriptions. ARR can be a useful operating indicator, but it is not interchangeable with revenue, especially for usage-based contracts, professional services, consumption commitments, or monthly subscribers. Freshworks states that ARR assumptions for monthly subscribers may not accurately reflect the revenue ultimately received over the following 12 months.
Record the definition beside every retention percentage
Create a notes column containing the exact cohort, time period, revenue base, and included events. If a company changes its definition, show the old and new methods separately or explain the bridge. Do not infer that two percentages are comparable merely because both are called “net retention.”
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How to analyze revenue growth
Decompose the source of growth
Read management’s explanation and classify growth into five practical buckets:
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- New customers: first-time purchases add logos and revenue.
- Expansion: existing customers buy more seats, products, capacity, or services.
- Usage: consumption rises, which can be especially important for inference and API products.
- Pricing: contract or list-price increases raise revenue without more volume.
- Acquisitions and divestitures: purchased or sold businesses change the reported base.
A high growth rate driven primarily by an acquisition has different durability from organic expansion. Usage-led growth can accelerate quickly but may decline with optimization or changing workloads. Pricing can improve revenue while creating pressure on retention if customers resist it.
Check the base effect
Growth percentages are sensitive to the prior-period denominator. Compare at least two years of reported revenue and growth rates where available. A company moving from 20% to 15% growth may still be adding more absolute dollars than a smaller company growing 40%. Show both the percentage and the change in revenue dollars.
Test concentration and contract timing
Ask whether a few large contracts, renewals, or public-sector deals explain an unusual quarter. A concentrated customer base can produce impressive growth and equally sharp reversals. Look for disclosed customer concentrations, remaining performance obligations, deferred revenue, and commentary about renewal timing.
How to analyze gross margins in an AI business
Use both the level and the trend
One year’s margin is less informative than its direction and explanation. A stable or rising margin while revenue grows suggests that delivery costs are scaling efficiently. A falling margin may indicate capacity investment, higher cloud prices, a shift toward lower-margin services, or unusually expensive inference. Compare the same definition across periods because reclassification can change the apparent trend.
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Inspect cost of revenue
Read the cost-of-revenue note for cloud infrastructure, data-center depreciation, third-party hosting, personnel supporting delivery, bandwidth, customer support, and implementation. Ask which costs are variable with usage and which are fixed investments. AI companies can show strong demand while margins remain under pressure if each additional query requires costly compute.
Distinguish consolidated and product economics
A diversified vendor may report a high consolidated gross margin while a new AI service has lower margins during scale-up. Conversely, an AI-first company may have a lower overall margin because it sells a compute-intensive product. Keep product economics separate from the corporate average whenever disclosure allows.
How to evaluate customer and net revenue retention
Start with logo retention
Logo retention is useful for judging whether customers remain, particularly for products sold to many small and midsize businesses. It can hide the loss of a major account, so pair it with revenue-based measures and customer concentration. Confirm whether the company counts a customer at the account, parent-company, workspace, or subscription level.
Interpret NRR above and below 100%
- Above 100%: the opening cohort expanded more than it contracted or churned, but the average result can conceal weak small accounts and a few large expansions.
- Exactly 100%: expansion offset losses in aggregate; it does not mean every account renewed unchanged.
- Below 100%: the cohort shrank in revenue, which requires investigation into churn, downgrades, reduced usage, or pricing changes.
Ask whether NRR is calculated from ARR or actual revenue. ARR-based NRR can be informative for subscription businesses but less reliable when customers consume services irregularly or when a small number of contracts dominate the base.
Use Vertex’s definition as an example of why wording matters
Vertex defines net revenue retention as the 12-month ARR expansion for customers present at the beginning of the period. Its definition includes revenue lost from departed customers, downgrades, reduced usage, and revenue expansion from migrations, additional licenses, and contractual or usage-based price changes. Vertex reported 105% for 2025, compared with 109% in 2024. Those figures are meaningful only with that definition and cohort context; they are not a universal formula for every software company.
Adjust for concentration and contract structure
C3.ai cautions that ARR and net dollar-based retention may not accurately indicate future results for its business because a small number of high-value contracts can make one win or loss move the metric substantially. Treat a reported NRR percentage as less stable when the customer base is concentrated, contracts are project-based, or renewals are negotiated individually.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.A repeatable eight-step comparison process
- Set the comparison date. Choose a fiscal year or quarter and write the exact end date for every company.
- Capture reported revenue. Record current and prior-period revenue, currency, scope, and the stated year-over-year change.
- Explain the growth. Tag disclosed contributions from usage, price, new customers, expansion, acquisitions, and foreign exchange.
- Calculate or verify gross margin. Use reported gross profit and revenue, then record the trend and the cost categories included in cost of revenue.
- Capture logo retention. Note the customer definition, starting cohort, and measurement window. Leave the cell as “not stated” if the company does not disclose it.
- Capture GRR and NRR separately. Record the exact formula, ARR or revenue base, and treatment of usage, migrations, price changes, and expansions.
- Stress-test quality. Review concentration, contract size, monthly versus annual billing, acquisitions, and any warning that the metric may not predict future results.
- Write a conditional conclusion. Identify which company has the fastest growth, strongest delivery economics, and healthiest retention under comparable definitions, then state where the comparison remains uncertain.
What published company examples show
| Company and period | Reported evidence | How to use it |
|---|---|---|
| Microsoft, FY2025 | Revenue was $281.724 billion; gross margin was $193.893 billion; total revenue increased 15% year over year. Microsoft Cloud revenue rose 23% to $168.9 billion, while Microsoft Cloud gross margin percentage decreased to 69%. | The report attributes cloud-margin pressure to scaling AI infrastructure, partly offset by Azure efficiency gains. Microsoft is diversified, so these consolidated results are not a pure-play AI software benchmark. |
| Vertex, 2025 versus 2024 | Net revenue retention was 105% in 2025 versus 109% in 2024 under Vertex’s 12-month ARR definition. | The decline does not by itself prove deterioration across all customers; inspect the included churn, downgrades, usage, migrations, licenses, and price changes. |
| Freshworks, 2023–2025 | Revenue was $596.4 million in 2023, $720.4 million in 2024, and $838.8 million in 2025. Year-over-year growth was 21% and 16%, respectively. | This illustrates decelerating growth in a software company. Its filing warns that ARR assumptions for monthly subscribers may not equal revenue received over the next 12 months. |
| C3.ai, FY2025 disclosure | The company warns that ARR and net dollar-based retention may not accurately indicate future results because a few high-value contracts can cause substantial volatility. | Use concentration warnings to reduce confidence in a single retention percentage and examine contract-level changes where disclosed. |
Interpret combinations of metrics, not isolated winners
| Pattern | Likely interpretation | Follow-up questions |
|---|---|---|
| High growth, rising gross margin, NRR above 100% | Demand, expansion, and delivery economics are reinforcing one another. | Is growth organic, and is retention broad or concentrated in a few accounts? |
| High growth, falling gross margin, NRR above 100% | Customers are expanding while infrastructure or service costs rise. | How much capacity investment is planned, and when does management expect efficiency gains? |
| Low growth, high gross margin, NRR below 100% | The installed base may be profitable but shrinking or under-expanding. | Are churn and downgrades concentrated in a segment, geography, or product? |
| High logo retention, low NRR | Many customers remain, but they are spending less or larger accounts are leaving. | What are GRR, customer concentration, and the distribution of account sizes? |
| High NRR, volatile results | Expansion may be driven by a few large contracts or usage spikes. | How stable is the cohort, and what happens if the largest account does not renew? |
Use retention and valuation statistics carefully
Industry statistics can provide context, not a target that every AI company should meet. Software Equity Group’s 2025 Annual SaaS Report says 63% of companies in its selected index that reported retention had net retention above 100% in the fourth quarter of 2024. In the same selected index, companies with less than 100% net retention had a 4.1-times median enterprise-value-to-trailing-twelve-month-revenue multiple, compared with a 5.6-times index median. The report says 8.2% of the index had net retention above 120%, and that group had an 11.7-times median multiple.
Those are sample-specific associations based on the report’s selected representation of fourth-quarter 2024 data. They do not establish that retention alone causes a valuation difference, nor do they provide a guaranteed benchmark for an AI company. Sector mix, growth, profitability, interest rates, customer concentration, and contract quality also affect valuation.
The High Alpha 2025 SaaS Benchmarks Report discusses gross and net revenue retention for companies where AI is core versus companies where AI is a supporting feature, but the available material does not provide the numeric values or methodology. Do not quote an AI-specific benchmark from that report without verifying those details.
Common comparison mistakes and how to fix them
- Mixing fiscal periods: Put the fiscal end date beside every number and avoid a single ranking when periods are materially different.
- Comparing a segment with a company: Label the scope and keep product, segment, and consolidated rows separate.
- Treating NRR as logo retention: Customer counts and customer dollars answer different questions; show both when available.
- Assuming NRR formulas are universal: Read the cohort and inclusion rules, especially for usage, migrations, added licenses, and price changes.
- Mixing ARR with revenue: Mark ARR as a run-rate measure and account for monthly or consumption-based contracts.
- Ignoring gross-margin composition: Identify cloud, inference, hosting, support, and implementation costs rather than comparing a percentage alone.
- Overlooking customer concentration: A few large contracts can move growth and retention sharply; inspect concentration disclosures.
- Calling correlation causation: Valuation studies describe observed associations in a sample, not a law of software economics.
- Comparing diversified cloud results with AI-first vendors without a warning: State clearly when a company’s AI activity is only one part of a broader portfolio.
A practical scorecard you can reuse
For each company, fill in the following fields before assigning any qualitative rating:
| Field | Entry to record |
|---|---|
| Period | Fiscal year or quarter and exact end date |
| Revenue scope | Consolidated, segment, product, geography, or other defined scope |
| Current and prior revenue | Reported amounts, currency, and year-over-year percentage |
| Growth drivers | Usage, pricing, new customers, expansion, acquisitions, foreign exchange, or other disclosed causes |
| Gross profit and margin | Reported gross profit, calculated margin if needed, and trend |
| Cost-of-revenue factors | Cloud, inference, hosting, support, implementation, personnel, and other disclosed items |
| Logo retention | Percentage, cohort, period, and customer-count definition, or “not stated” |
| GRR | Percentage and exact exclusions, or “not stated” |
| NRR | Percentage, ARR or revenue basis, cohort, time window, and included expansion or contraction |
| Concentration and limits | Large-customer exposure, contract type, usage volatility, and management warnings |
| Conclusion | Separate judgments for growth, delivery economics, retention quality, and confidence in the data |
Only after completing the scorecard should you make a judgment. A company with the fastest reported growth may have weaker margins; a company with the highest NRR may have a concentrated customer base; and a company with excellent margins may be shrinking. The useful comparison is the one that preserves those trade-offs instead of collapsing them into one headline percentage.
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