MRR vs ARR: Understanding Recurring Revenue Metrics for SaaS
MRR and ARR are the foundational metrics of any SaaS business. Calculating them correctly — and tracking the right components — is less obvious than it appears. Here's the complete guide.
What MRR and ARR Actually Measure
MRR is the normalised monthly value of all active subscriptions. ARR is MRR × 12. Both measure the predictable, recurring revenue run-rate — the critical word is recurring. One-time fees, professional services, and non-recurring charges are excluded. Including them inflates MRR and gives a misleading picture of the business's predictable base. Calculate both with our MRR calculator and ARR calculator.
The Five Components of MRR Movement
- New MRR: Revenue from customers who didn't exist in your base last month
- Expansion MRR: Additional revenue from existing customers (upgrades, seat additions)
- Reactivation MRR: Revenue from previously churned customers who returned
- Contraction MRR: Revenue from existing customers who downgraded
- Churned MRR: Revenue from customers who cancelled
Net New MRR = New + Expansion + Reactivation − Contraction − Churn. Watching each component separately is far more valuable than watching total MRR — it tells you where growth is coming from and where it's leaking.
Common Calculation Mistakes
Including one-time fees. Implementation and onboarding fees distort the recurring trend. Counting annual contracts at full value. A $12,000 annual contract contributes $1,000/month to MRR. Using cash received instead of normalised revenue. MRR is an accrual metric — a $24,000 2-year prepayment adds $1,000/month for 24 months, not $24,000 in the payment month.
Net Revenue Retention: The MRR Metric That Predicts Future Growth
NRR = (Beginning MRR + Expansion − Contraction − Churn) ÷ Beginning MRR × 100. Above 100% means your existing customer base grows without new acquisition. Best-in-class SaaS companies maintain NRR above 120%. At 120% NRR, a company with zero new customers still grows 20% annually from expansion alone. Snowflake reported NRR above 150% during its peak growth — existing customers grew 50% per year in spending.