MRR & ARR Explained: How to Calculate and Project SaaS Recurring Revenue
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ARR is simply normalized MRR annualized — annualize rather than summing raw invoices for a stable number.
A net 8% monthly growth rate roughly 2.5×’s your MRR in a single year thanks to compounding.
Top SaaS companies keep monthly logo churn under 1% and reach net-negative revenue churn via expansion.
If you run a subscription business, two numbers tell the truth faster than anything else on your dashboard: MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue). They normalize every plan, discount, and billing cycle into one comparable figure, so you can see how big you are today and how fast you're compounding.
This guide explains exactly what MRR and ARR are, how to calculate them correctly, why net new MRR matters more than top-line growth, and how to project recurring revenue forward using your growth and churn rates.
What Are MRR and ARR?
Monthly Recurring Revenue (MRR) is the predictable, normalized revenue your active subscriptions generate every month. Annual Recurring Revenue (ARR) is simply that figure annualized — the recurring revenue you'd collect over a full year if nothing changed.
The key word is recurring. One-time setup fees, professional-services invoices, and usage overages that don't repeat predictably are excluded. MRR and ARR measure the durable, subscription portion of your revenue — the part investors and operators use to value a SaaS business.
How to Calculate MRR and ARR
The simplest, most reliable formula uses your customer count and your average revenue per user:
- MRR = Number of paying customers × ARPU (average revenue per user per month)
- ARR = MRR × 12
For example, 250 customers paying an average of $79/month gives an MRR of $19,750 and an ARR of $237,000. If you bill some customers annually, convert each annual contract back to a monthly figure (annual price ÷ 12) before summing, so every plan is expressed on the same monthly basis.
Always annualize MRR to get ARR rather than summing actual invoices — annualizing keeps the number stable month to month and comparable across companies on different billing cadences.
Net New MRR: The Number That Really Matters
Top-line MRR tells you size; net new MRR tells you momentum. Each month your MRR moves for several reasons, and breaking it into components reveals whether growth is healthy or hollow:
- New MRR — revenue from brand-new customers.
- Expansion MRR — upgrades, seat additions, and add-ons from existing customers.
- Contraction MRR — downgrades that reduce existing customers' spend.
- Churned MRR — revenue lost when customers cancel.
Net new MRR = New + Expansion − Contraction − Churn. A business can post impressive new-customer numbers and still stall if churn quietly eats the gains. That's why the best SaaS teams obsess over net new MRR — and why the strongest companies reach net negative churn, where expansion alone outweighs all losses.
Projecting MRR and ARR Forward
To forecast recurring revenue, apply your net monthly growth rate as a compounding multiplier. If you add customers at a gross growth rate of g% and lose them at a churn rate of c%, your net monthly rate is (g − c)%, and each month's MRR is the previous month's MRR multiplied by (1 + g − c).
Because the rate compounds, small differences explode over time. Consider a business at $19,750 MRR:
| Net monthly growth | MRR after 12 months | Implied annual growth |
|---|---|---|
| 2% | $25,041 | ≈ 27% |
| 5% | $35,468 | ≈ 80% |
| 8% | $49,750 | ≈ 152% |
The lesson: a few points of net monthly growth — gained either by acquiring faster or churning less — change your trajectory dramatically over a year. Cutting churn is often the cheaper lever, because every retained dollar compounds for the life of the customer.
MRR & ARR Best Practices
- Normalize every plan to a monthly figure before summing, including annual contracts.
- Exclude one-time fees and non-recurring services — they aren't recurring revenue.
- Track net new MRR monthly, broken into new, expansion, contraction, and churn.
- Watch the net growth rate (growth − churn), not just the headline growth number.
- Re-run your projection whenever growth or churn shifts — the compounding makes it sensitive.
Expert Tips
Track net new MRR, not just bookings
Break every month into New, Expansion, Contraction, and Churn. Strong new-customer numbers can hide a churn problem that quietly cancels your growth.
Attack churn before acquisition
Lowering churn lifts the net monthly rate that compounds every month and extends customer lifetime — often a cheaper, more durable lever than spending more to acquire.
Frequently Asked Questions
What is the difference between MRR and ARR?
MRR is your normalized monthly recurring revenue; ARR is that figure annualized (MRR × 12). They describe the same recurring revenue at different time scales — MRR for month-to-month operating, ARR for valuation and annual planning.
How do I calculate MRR?
Multiply your number of paying customers by your ARPU (average revenue per user per month). If plans vary, sum each customer's normalized monthly subscription value. Exclude one-time fees and non-recurring charges.
What is net new MRR?
Net new MRR is the change in MRR over a month: New + Expansion − Contraction − Churn. It shows whether your recurring revenue is genuinely growing after accounting for the revenue you lose to downgrades and cancellations.
Should I use ARR or MRR for my SaaS?
Use MRR for operational tracking and month-over-month momentum, and ARR for fundraising, valuation, and annual targets. Early-stage and monthly-billed businesses lean on MRR; companies with annual contracts and investors usually report ARR.