Taralika Cloud opens the year with Rs 400 crore of ARR, 12% gross churn, 25% expansion, Rs 120 crore of new ARR and a free cash flow margin of minus 5%. Build the ARR bridge, compute net dollar retention and the Rule of 40, and forecast next year.

Closing ARR is Rs 572 crore, net dollar retention 113%, growth 43%, and a Rule of 40 score of 38. The bridge is 400 less 48 of churn plus 100 of expansion plus 120 new. Next year on the same rates ARR reaches about Rs 766 crore, but growth slows to 34% because new ARR is flat while the base grows, so the Rule of 40 score falls to about 29 unless cash margin improves.

Four movements. Churn: 12% of Rs 400 crore, Rs 48 crore, walks out. Expansion: the customers who stay buy 25% more, Rs 100 crore. New: Rs 120 crore from logos signed this year. Closing ARR is 400 less 48 plus 100 plus 120, Rs 572 crore, and the installed base alone contributed a net Rs 52 crore before a single new customer was signed. Think of a gym: members who quit, members who upgrade to personal training, and new joiners. The first two are about the product; the third is about the sales team.

Net dollar retentionRevenue from the customers you had a year ago, as a percentage of what they paid then, after churn and expansion but before new customers. is 452 over 400, 113%: last year's customers are worth 13% more this year even after the leavers. Above 100% the base grows on its own, and at 113% it would double in about 5.7 years with no new sales at all. The Rule of 40 adds growth to cash margin: 43 plus minus 5 is 38, just under the bar that investors use to say growth is being bought at an acceptable burn. Investors ask for both because NDR measures the product and the Rule of 40 measures the whole company's efficiency; a business can have a fine NDR and a terrible score if it overspends on new logos.

Apply the rates to a bigger base and the same Rs 120 crore of new sales. Churn is 12% of 572, Rs 68.6 crore; expansion 25%, Rs 143 crore; new 120. Closing ARR is about Rs 766 crore, but growth is 34%, down from 43%, because the retention engine scales with the base while new ARR is flat at 120, a smaller and smaller share of a growing company. On the same minus 5% cash margin, the Rule of 40 score drops to about 29. Management's forecast is really a statement that new logo sales must grow too, or the cash margin must improve, and the interviewer wants to hear which.

Churn, because it compounds. Hold new ARR at Rs 120 crore and run three years: at 12% churn ARR reaches about Rs 986 crore, at 18% about Rs 876 crore, and at 8% about Rs 1,065 crore. Six points of churn on the plan are worth Rs 110 crore of ARR by year 3, roughly a full year of new logo sales. That is why a SaaS operator fixes retention before adding sales headcount: a point of churn saved applies to every customer ever won, while a new salesperson adds a fixed amount once. Say the limit: expansion of 25% is high and tends to fall as the base matures, so a forecast that holds it flat for three years is optimistic.