MRR = Sum (Monthly Revenue Streams)

ARR = Sum (Annual Revenue Streams)

In a subscription-based or SaaS business, Monthly Recurring Revenue (MRR) and Annually Recurring Revenue (ARR) are the backbone of your revenue stream. There are a few different ways to calculate the MRR and ARR for your business – let’s take a look at a few of them.

A basic calculation of Monthly Recurring Revenue can be found by summing all of your recurring revenue streams for a specific month. For example, if you have 10 customers paying $20 each per month, your MRR would be $200 (10 customers x $20 = $200). It is important to note that if you have customers who pay a subscription over a time period other than monthly, such as quarterly and annually, you must adjust those revenues by dividing them into monthly revenues in order to properly calculate MRR.

Similarly, Annually Recurring Revenue is calculated the same way as Monthly Recurring Revenue, however now your revenue streams are totaled over the period of one year. In the same example as above, if you have 10 customers paying $20 each per month, assuming those customers have been paying for at least an entire year, your ARR would be $2400 (10 customers x $20 x 12 mo. = $2400).

Another method of calculating MRR can be found by multiplying your Average Revenue per Customer (ARPC) by your total amount of customers. This calculation is found nearly the same as the MRR and ARR calculations we just discussed above.

MRR = ARPC × Total Customers

 

However, as David Skok details in his breakdown of SaaS metrics, a more precise calculation of MRR can be found through carefully classifying MRR into 3 distinct types:

  • New MRR: MRR gained from new customers in a given month
  • Churned MRR: MRR lost from customers who do not renew subscriptions for a given month
  • Expansion MRR: any increases in MRR from your existing base of customers

Once you have determined your MRR gains/losses from these sources, you can then calculate your Net New MRR by summing the 3 together. Add your Net New MRR total onto your previous month’s MRR, and you should arrive at your new MRR calculation.

MRR = Previous MRR + (New MRR + Expansion MRR – Churned MRR)