How to calculate MRR and ARR

MRR (monthly recurring revenue) is the subscription revenue you can expect every month. ARR is the same thing for a year. They sound simple, but annual plans, discounts and one-off fees trip a lot of founders up. Here's how to do it with one made-up example.

The example

A small SaaS has 80 customers on a $40 monthly plan, 10 customers who paid $600 for a year up front, and 5 customers on a $100 plan with a 20% discount.

The formula

MRR = the sum of what every paying customer pays per month.

• Monthly plan: 80 × $40 = $3,200.
• Annual plan: $600 ÷ 12 = $50 a month each, so 10 × $50 = $500. Count annual plans as one twelfth per month, not the whole payment in the month it arrives.
• Discounted plan: $100 × 0.8 = $80, so 5 × $80 = $400. Use what customers actually pay, not list price.

Total MRR = $3,200 + $500 + $400 = $4,100.

ARR = MRR × 12, so $49,200.

What not to count

• One-off setup or consulting fees. They don't repeat, so they aren't recurring.
• Free trials. A customer counts once they're paying.
• Usage overages that swing a lot month to month. Track them separately or use a conservative average.
• Customers who have already cancelled, even if their paid period hasn't ended.

The MRR bridge

To see why MRR moved, split the change into parts:

Ending MRR = starting MRR + new + expansion − contraction − churned.

Say the month starts at $4,100. New customers add $600, upgrades add $200, downgrades take away $100 and cancellations take away $300. Ending MRR = $4,100 + $600 + $200 − $100 − $300 = $4,500. Net new MRR is $400.

The bridge shows whether growth comes from new sales or from keeping and growing existing customers. For the churn side, see how to calculate churn.

Growth rate

MRR growth = (ending MRR − starting MRR) ÷ starting MRR. ($4,500 − $4,100) ÷ $4,100 is about 9.8% for the month.

Where MRR leads next

MRR divided by paying customers gives ARPU, which feeds LTV. MRR times gross margin, minus expenses, gives net burn and runway. Every formula in one place: SaaS metrics formulas.

Want the full model?

The Founder Unit Economics Pack ($39) is an Excel and Google Sheets workbook with pricing tiers, a 12-month MRR projection, LTV:CAC, payback and runway, with side-by-side scenarios.