How it's calculated
Monthly recurring revenue (MRR) is what your subscribers are committed to pay each month. Public SaaS companies define it the same way in their annual reports: Datadog, for example, calculates ARR "by taking the monthly run-rate revenue, or MRR, and multiplying it by 12".SEC (EDGAR) Freshworks counts the subscription revenue it "would contractually expect to recognize over the next 12 months", and multiplies the last month's run-rate by 12 for monthly plans.SEC (EDGAR)
The calculator splits a month's change in MRR into its four drivers, so you can see whether growth comes from new customers, from existing ones buying more, or is being eaten by downgrades and cancellations.
The formula
- Ending MRR = starting MRR + new MRR + expansion MRR − contraction MRR − churned MRR
- Net new MRR = new + expansion − contraction − churned
- MRR growth = net new MRR ÷ starting MRR
- ARR = ending MRR × 12
- Quick ratio = (new + expansion) ÷ (contraction + churned)
Worked example
Starting the month at $100,000 of MRR, adding $10,000 from new customers and $5,000 from upgrades, and losing $2,000 to downgrades and $3,000 to cancellations ends the month at $110,000: ARR of $1,320,000 and growth of 10% in the month.
| Line | MRR |
|---|---|
| Starting MRR | $100,000 |
| New MRR (new customers) | $10,000 |
| Expansion MRR (upgrades) | $5,000 |
| Contraction MRR (downgrades) | -$2,000 |
| Churned MRR (cancellations) | -$3,000 |
| Net new MRR | $10,000 |
| Ending MRR | $110,000 |
| ARR (ending MRR × 12) | $1,320,000 |
Assumptions and limitations
- Recurring revenue only. One-off setup fees, professional services and irregular usage are left out of MRR, even though they are revenue.
- ARR is a run rate, not booked revenue. It can differ from the revenue in your accounts for the same year.
- Annual contracts count as one-twelfth of their annual value each month.
- Currency: choose dollars, euros, pounds or rupees under the advanced settings; the maths is the same.