MRR vs ARR: How to Calculate SaaS Revenue (With Examples)
By Arshi Khan, Founder of Just4Marketing · October 26, 2026 · 6 min read
What counts as monthly and annual recurring revenue, how to build an MRR bridge, and how to read growth, net revenue retention, and the SaaS quick ratio from it.
For a subscription business, revenue on the income statement only tells half the story. What investors, lenders, and founders really watch is recurring revenue — the money that arrives again next month without a new sale. Monthly recurring revenue (MRR) and annual recurring revenue (ARR) are the two ways of expressing it, and getting them right is the foundation for every other SaaS metric.
MRR and ARR in one line each
- MRR is the subscription revenue you can expect every month, normalised to a monthly figure. 200 customers on a $99 plan is $19,800 of MRR.
- ARR is MRR × 12 — the same revenue expressed per year. That $19,800 of MRR is $237,600 of ARR.
Which one to report is mostly convention. Products sold on monthly plans tend to talk in MRR; companies selling annual contracts to larger businesses tend to report ARR.
What counts — and what doesn't
- Annual contracts are spread out. A customer paying $12,000 upfront for a year adds $1,000 of MRR, not $12,000 in the month they paid.
- One-time fees are left out. Setup, onboarding, consulting, and hardware aren't recurring, so they don't belong in MRR even if they arrive on the same invoice.
- Discounts are included as charged. A $99 plan sold at 20% off is $79.20 of MRR, not $99.
- Free trials aren't revenue yet. Count a customer when they start paying.
- Usage overages are a judgment call. If they're volatile, many companies report them separately so MRR reflects committed revenue.
The MRR bridge: where growth really comes from
Total MRR can rise while the business underneath is leaking customers. Breaking each month into its parts shows what's actually happening:
| MRR movement | Example month |
|---|---|
| Starting MRR | $50,000 |
| + New MRR (new customers) | +$6,000 |
| + Expansion MRR (upgrades, extra seats) | +$3,000 |
| − Contraction MRR (downgrades) | −$500 |
| − Churned MRR (cancellations) | −$1,500 |
| Ending MRR | $57,000 (ARR $684,000) |
From the same five numbers you can read the health of the business:
- MRR growth: $57,000 ÷ $50,000 − 1 = 14% in the month.
- Net revenue retention: ($50,000 + $3,000 − $500 − $1,500) ÷ $50,000 = 102%. Existing customers alone grew revenue, before counting any new ones.
- Gross revenue retention: ($50,000 − $500 − $1,500) ÷ $50,000 = 96% — what you keep before upgrades.
- SaaS quick ratio: (new + expansion) ÷ (contraction + churn) = $9,000 ÷ $2,000 = 4.5. A ratio around 4 or above is often cited as a sign of efficient growth.
Common mistakes
- Booking an annual prepayment as one month's MRR, which makes that month look spectacular and the next eleven look flat.
- Counting signed-but-not-started contracts as MRR. Many companies track these separately as contracted ARR.
- Reporting only net new MRR. A healthy-looking total can hide high churn being covered by expensive new sales.
- Mixing currencies without a fixed conversion rate, so exchange-rate swings look like growth or churn.