MRR & ARR Calculator,
track your recurring revenue.

SaaS metrics guide

Understanding MRR, ARR, and recurring revenue

Monthly Recurring Revenue (MRR) is the single most important metric for subscription businesses. Unlike one-time revenue, MRR is predictable, compounding, and directly tied to the health of your customer relationships. Every funding conversation, valuation discussion, and hiring decision at a SaaS company ultimately traces back to MRR and its trajectory.

What is MRR?

MRR is the normalised monthly revenue from all active subscriptions. The key word is normalised: if a customer pays annually upfront ($1,200/year), their MRR contribution is $100/month — not $1,200 in the month they pay. This normalisation is what makes MRR meaningful as a growth indicator.

MRR excludes one-time setup fees, professional services, and non-recurring charges. It also excludes revenue from customers who are in a free trial and have not yet converted. When in doubt: if the revenue recurs on a regular schedule under contract, it counts.

What is ARR?

Annual Recurring Revenue (ARR) = Ending MRR × 12. ARR is most commonly used by enterprise SaaS companies where annual contracts are the norm. It is the headline number investors, analysts, and acquirers use to benchmark scale. ARR multiples (the ratio of enterprise value to ARR) are the primary valuation lens for growth-stage SaaS.

For companies with monthly billing, ARR is a useful forward-looking projection — it assumes current MRR runs for the next 12 months. It is not the sum of last year's revenue.

The MRR waterfall: four components

Breaking MRR into its components gives you a complete picture of revenue health. The standard waterfall has four inputs:

• New MRR: Revenue from customers who signed up for the first time this month. This is the output of your acquisition engine.
• Expansion MRR: Additional revenue from existing customers — upsells, seat additions, plan upgrades, or usage overages. Expansion MRR above a threshold can make a company “default alive” even with moderate new customer acquisition. A healthy SaaS business targets expansion MRR of 20–30% of total new revenue.
• Churned MRR: Revenue lost from customers who cancelled entirely. Churn is the silent growth killer: a 3% monthly churn rate means 30% of your customer base disappears annually. For most B2B SaaS, a monthly MRR churn rate below 1% is considered strong; below 0.5% is exceptional.
• Contraction MRR: Revenue lost from customers who downgraded to a cheaper plan but did not cancel. Often called “negative expansion” or “downsell,” contraction is frequently under-tracked but signals product-market fit issues or pricing misalignment.

Net New MRR = New + Expansion − Churned − Contraction. A positive Net New MRR means the business is growing. A negative Net New MRR means it is shrinking, even if new customer acquisition is positive.

Net Revenue Retention (NRR)

NRR — also called Net Dollar Retention (NDR) — measures what percentage of last month's MRR you retained from existing customers:

NRR = (Starting MRR + Expansion − Churn − Contraction) / Starting MRR × 100

NRR above 100% means your existing customer base is growing without any new customers. This is the hallmark of a best-in-class SaaS business. Category leaders like Snowflake and Datadog have historically reported NRR of 130–160%. For most companies, an NRR above 110% is excellent; above 120% is exceptional.

MRR growth benchmarks

Month-over-month MRR growth (Net New MRR / Starting MRR) translates directly to annualised growth rates:

• 2% MoM ≈ 27% annual growth
• 5% MoM ≈ 80% annual growth
• 10% MoM ≈ 214% annual growth
• 15% MoM ≈ 435% annual growth (often called “T2D3” pace — triple, triple, double, double, double)

Growth rates compress as revenue scales. A $10K MRR business growing at 15% MoM is building something exciting; a $10M MRR business growing at 15% MoM is exceptional. Context matters — always benchmark against similar-stage, similar-market companies.

ARPU, tiers, and revenue composition

Average Revenue Per User (ARPU) is MRR divided by total active customers. Higher ARPU generally means lower churn (enterprise customers churn less than SMB customers), better unit economics, and more leverage on customer success spend.

Most SaaS companies tier their pricing (Starter / Pro / Enterprise) to capture different willingness-to-pay segments. The distribution of revenue across tiers reveals strategic risk: a business where 80% of MRR sits in two Enterprise accounts is more fragile than one with diversified SMB MRR, even if the ARR looks similar.