SaaS Metrics
MRR and ARR are the universal language of subscription businesses. Calculating them wrong distorts every decision. Here's the definitive guide.
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Create a free accountIf you run a business with recurring revenue —a SaaS, a membership, a subscription service— there are two metrics that investors, banks and you yourself should look at before any other: MRR and ARR. And yet many founders calculate them wrong, confuse them, or use whichever is more convenient to "inflate" their numbers.
In this guide we explain what they are, how to calculate them correctly, which one to use in each context, and which derived metrics (NRR, Churn, Expansion MRR) you should add to your dashboard.
MRR (Monthly Recurring Revenue) is the predictable, normalized revenue your business generates each month from its active subscriptions. It is the north-star metric of any subscription business.
For annual plans: divide the annual amount by 12 to get the monthly equivalent
You have three subscription plans:
Your total MRR is: $760 + $1,225 + $995 = $2,980/month
Include: revenue from active subscriptions (monthly and normalized annual), confirmed upgrades, additional recurring usage charges.
Do not include: one-time setup fees, one-off consulting projects, temporary onboarding discounts, revenue from customers on a free trial.
ARR (Annual Recurring Revenue) is simply MRR multiplied by 12. It is not the sum of the last 12 months, but a projection of what you would earn in a year if everything stayed the same today.
With $2,980 of MRR, your ARR is $35,760. It is a projection, not a historical figure.
Use MRR for day-to-day operational tracking: the month's sales, monthly churn, weekly progress. It is the internal management metric.
Use ARR when you talk to investors, present in pitch decks, or benchmark yourself against the industry. Venture capital funds value businesses as a multiple of ARR (typically 3x-10x for early-stage SaaS).
MRR on its own does not tell you whether your business is growing in a healthy way. You need to break it down:
Revenue from customers who subscribed for the first time this month. It is the growth engine. If it does not grow, the business stalls.
Additional revenue from existing customers: plan upgrades, buying extra seats, add-ons. It is the clearest signal that your customers find value in your product. The best SaaS companies have Expansion MRR that partially covers Churned MRR.
Revenue that stopped coming in from cancellations or downgrades. It is the "hole in the bucket." A high Churned MRR cancels out any growth from New MRR.
If this number is positive, your MRR is growing. If it is negative, you are shrinking even while adding new customers.
NRR (Net Revenue Retention) measures how much of your existing customers' MRR you keep (or exceed) in the following period:
An NRR of 100% means you lose no revenue from existing customers. An NRR above 100% (110%, 120%) means your current customers pay you more each year even if you acquire no new ones. It is the holy grail of SaaS.
You lose more customers than you expand. Growth is very expensive.
Typical range for SMB SaaS. You can grow but need constant acquisition.
You would grow even without landing a single new customer. A compounding effect.
Setup fees, projects, perpetual licenses. They are real revenue but not recurring. They inflate your MRR and distort projections. Always separate them.
If a customer pays $1,200 a year in January, do not add $1,200 to January's MRR. Add $100 (1,200 ÷ 12) each month. Mixing annual charges with monthly MRR creates false spikes.
A user on a 14-day free trial generates no MRR. It only counts when they convert and pay. Counting trials inflates the metrics and fools everyone, including yourself.
Many founders only celebrate New MRR and avoid looking at cancellations. But without knowing Churned MRR, you do not know whether you are really growing. A 5% monthly churn rate means you lose 46% of your customer base in a year.
In the startup ecosystem these milestones are used as reference points:
Hayes Strategic calculates and breaks down all your SaaS metrics automatically from your transactions.
MRR and ARR are the universal language of subscription businesses. Calculating them well is not just a matter of accounting precision: it is the difference between making decisions with real data or with optimistic illusions.
If your MRR grows but your NRR is below 90%, you are running on a treadmill. If your Expansion MRR starts to offset Churn, you have a compounding growth engine. The question is not how much you invoiced this month, but how much you will invoice next month —and why. That is exactly what Hayes Strategic exists for.