MRR / ARR
Recurring revenue metrics.
What does MRR / ARR mean?
Monthly Recurring Revenue (MRR) is the predictable revenue a subscription business earns each month. Annual Recurring Revenue (ARR) is simply MRR multiplied by 12 and represents the annualized run rate. Together, MRR and ARR are the most important top-line metrics for SaaS and subscription companies, used by founders and investors to gauge business health, growth trajectory, and valuation.
How to calculate MRR / ARR
MRR is calculated as: MRR = Number of Subscribers x Average Monthly Price. ARR is: ARR = MRR x 12. To account for churn, Monthly Churn Loss = MRR x (Churn Rate / 100), and Net New MRR = MRR - Monthly Churn Loss. For example, 500 subscribers at $49/month gives an MRR of $24,500 and an ARR of $294,000. With 5% monthly churn, you lose $1,225/month, leaving a net MRR of $23,275.
FAQ
MRR measures the recurring revenue normalized to a single month, while ARR annualizes that figure by multiplying MRR by 12. MRR is useful for tracking month-over-month growth and operational decisions, whereas ARR is commonly used for annual planning, investor reporting, and company valuation.
Churn directly erodes your recurring revenue base. Even a seemingly small monthly churn rate compounds significantly over a year. For example, 5% monthly churn means you lose roughly 46% of your subscriber base annually if no new customers are added. Tracking net MRR (after churn) gives a more realistic picture of revenue health.
For B2B SaaS companies, a monthly churn rate of 3-5% is common in early stages, while mature companies often target below 2%. For B2C subscription businesses, churn tends to be higher, typically 5-10%. The ideal churn rate depends on your business model, pricing, and customer segment.
No. MRR should only include predictable, recurring charges such as subscription fees. One-time setup fees, implementation charges, or non-recurring add-ons should be excluded to keep MRR an accurate measure of sustainable revenue.
There are three main levers: acquire new customers (new MRR), reduce cancellations (lower churn), and increase revenue from existing customers through upsells, cross-sells, or price increases (expansion MRR). The most capital-efficient path is usually reducing churn first, then focusing on expansion revenue.
Related calculators
- Customer LTV— Total revenue per customer.
- Churn Rate— Customer loss percentage.
- Break-Even— Point where revenue equals cost.
- CAGR— Average annual growth rate.