What Is MRR and ARR? SaaS Metrics Explained
What Is MRR and ARR? SaaS Metrics Explained
MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) are the heartbeat metrics of any subscription business. They tell you exactly how much predictable revenue you generate—and more importantly, whether that number is growing or shrinking.
Understanding these metrics is crucial whether you're building a SaaS startup, running a membership site, or managing subscription products. In this guide, you'll learn how to calculate MRR and ARR correctly, understand the components that drive them, and track the sub-metrics that reveal your business health.
Use Our Free MRR/ARR Calculator
Enter your subscription tiers and customer counts to calculate your MRR and ARR instantly. Track new MRR, expansion, contraction, and churn.
How It Works: Calculating MRR and ARR
MRR (Monthly Recurring Revenue) = Sum of all recurring monthly subscription revenue, normalized to a monthly value.
ARR (Annual Recurring Revenue) = MRR × 12
Normalization is key: A customer paying $1,200 annually contributes $100 MRR (not $1,200 in the month they pay). One-time payments, setup fees, and non-recurring charges are excluded from MRR.
MRR Components:
Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR
Step-by-Step Example: Calculating Your Metrics
Scenario: A SaaS company has the following subscription data:
Current customers:
Total MRR: $21,000
ARR: $21,000 × 12 = $252,000
This month's changes:
Net New MRR: $1,500 + $250 - $150 - $600 = $1,000
End of Month MRR: $21,000 + $1,000 = $22,000
MRR Growth Rate: 4.76%
Key Factors to Consider
1. Exclude Non-Recurring Revenue
Setup fees, one-time purchases, professional services, and variable usage charges should not be included in MRR. These inflate your recurring revenue metric and create misleading trends.
2. Track Net Revenue Retention (NRR)
NRR measures whether existing customers spend more or less over time. NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR. Above 100% means your existing customers grow faster than churn—the holy grail of SaaS.
3. Segment Your MRR
Break down MRR by plan, customer type, acquisition channel, or cohort. This reveals which segments drive growth and which have concerning churn rates. A healthy overall number can hide problematic segments.
4. Use Committed Monthly Recurring Revenue (CMRR)
CMRR includes signed contracts that haven't started yet and subtracts known cancellations coming. This forward-looking metric gives a better picture of next month's revenue than pure MRR.
Frequently Asked Questions
What is the difference between MRR and ARR?
MRR is monthly recurring revenue; ARR is annual recurring revenue (MRR × 12). MRR is better for tracking month-to-month changes, while ARR is commonly used for annual planning, valuations, and comparing businesses of different sizes.
How do you calculate MRR from annual subscriptions?
Divide the annual payment by 12 to normalize it to a monthly value. A customer paying $1,200/year contributes $100 MRR. This ensures consistent comparison between monthly and annual subscribers.
What is a good MRR growth rate?
10-20% month-over-month MRR growth is excellent for early-stage startups. 5-7% is solid for growing companies. Established SaaS businesses often target 2-3% monthly (25-40% annually). Growth naturally slows as revenue base increases.
What is expansion MRR?
Expansion MRR is additional revenue from existing customers through upgrades, add-ons, or increased usage. High expansion MRR indicates product value and can offset churn. Top SaaS companies get 20-40% of growth from expansion.
How do you reduce MRR churn?
Reduce churn by improving onboarding, adding proactive customer success, offering annual plans with discounts, identifying at-risk customers early, and continuously improving product value. Best-in-class SaaS companies achieve <2% monthly MRR churn.