Hong Life CalculatorsUnderstanding the MRR and ARR calculator — concept and principle
Monthly recurring revenue (MRR) is the predictable subscription revenue a business earns each month; annual recurring revenue (ARR) is the same run rate expressed per year. SaaS founders, investors and finance teams use them to size a subscription business, track growth month by month and compare companies. This calculator builds MRR from your customer count and average price, adjusts it for this month's expansion and churn, and annualises it.
How it is calculated
- MRR = customers × average monthly price + expansion MRR − churned MRR
- ARR = MRR × 12
- Net new MRR = expansion MRR − churned MRR
Expansion MRR is extra recurring revenue from existing customers (upgrades, added seats, add-ons). Churned MRR is recurring revenue lost from cancellations or downgrades. Annual plans count as their annual price ÷ 12. One-time fees, setup charges and usage overages that do not recur are excluded. Any currency works.
The principle
MRR normalises every subscription to a monthly amount so that monthly, quarterly and annual plans can be added together. Multiplying by 12 gives ARR, a snapshot of the current run rate, not a forecast: it assumes this month's recurring revenue simply continues for a year. Net new MRR isolates the movement from existing accounts; in a full MRR bridge, new-customer MRR would be added to it.
Worked example
- 420 customers × $49 = $20,580 base MRR.
- Add expansion $1,200 and subtract churn $800: MRR = 20,580 + 1,200 − 800 = $20,980.00.
- ARR = 20,980 × 12 = $251,760.00.
- Net new MRR = 1,200 − 800 = $400.00.
How to read the result
Positive net new MRR means expansion from existing customers outweighs what you lose, a healthy sign. Track MRR monthly and look at its growth rate rather than a single value. When the base already reflects this month's customers, enter the expansion and churn that are not yet included in that average price, so you are not counting them twice.
Common mistakes
- Counting one-time setup fees or professional services as recurring revenue.
- Booking an annual plan's full payment as one month's MRR instead of ÷ 12.
- Double-counting: using an end-of-month customer count that already excludes churned users and then subtracting churn again.
- Treating ARR as guaranteed revenue for the next year.
Frequently asked questions
Is ARR the same as annual revenue?
No. ARR is the current recurring run rate × 12. Actual revenue for a year depends on growth, churn and non-recurring income during that year.
Should free trials count in MRR?
Usually not. Count a customer in MRR once they are paying.
How are discounts handled?
Use the price customers actually pay after the discount, so the average monthly price reflects real recurring revenue.
What is a good MRR growth rate?
It depends heavily on stage and market, so compare with your own history and with companies of similar size rather than a single benchmark.
Sources: Ross and Lemkin, From Impossible to Inevitable (SaaS recurring revenue metrics)