GlossaryUpdated October 16, 2026·5 min read

MRR and ARR in SaaS: Formulas, the Types of MRR and How They Connect to Retention

Patrik Chalupa

Co-founder & CMO

Monthly recurring revenue (MRR) is the predictable revenue a subscription business earns every month from active subscriptions. Annual recurring revenue (ARR) is the same number on a yearly scale. Both leave out one-time fees, so they show the revenue the business can count on as long as customers stay.

For customer success, MRR matters less as one total and more as a set of movements: how much was added by existing customers, how much they shrank, and how much left. Those movements are what net and gross revenue retention are made of.

How to calculate MRR

MRR = sum of the monthly recurring charges of all active subscriptions

Rules that keep the number honest:

Annual and multi-year contracts are divided by 12 (or by the number of months in the term). A $24,000 annual contract adds $2,000 MRR.
Discounts count while they apply. A 20% discount for the first year lowers MRR for that year.
One-time fees are excluded: setup, implementation, training, services.
Usage-based charges are included when they recur, usually as a trailing average, not the spike from one month.
Free and trial accounts add nothing, and a paused subscription adds nothing while paused.
Count MRR when the contract starts, not when it is signed or invoiced.

How to calculate ARR

ARR = MRR × 12

or, for businesses on annual contracts, the sum of the annual contract value of all active subscriptions. The same exclusions apply: no one-time fees, no services.

MRR or ARR? Companies with monthly plans and smaller customers usually report MRR. B2B SaaS companies with annual contracts and larger customers usually report ARR, because it matches how customers buy. The numbers describe the same thing; pick one and use it consistently.

The five types of MRR

Type	What it is	Example
New MRR	Revenue from new customers in the period	A new customer signs a $1,500 per month plan
Expansion MRR	Growth from existing customers: more seats, a higher plan, add-ons	An account goes from 20 to 30 seats (+$500)
Contraction MRR	Shrinkage from customers who stay: fewer seats, a lower plan	An account downgrades (−$300)
Churned MRR	Revenue lost from customers who cancel	A $900 per month customer leaves
Reactivation MRR	Revenue from former customers who come back	A churned account returns at $700

Net new MRR = new + expansion + reactivation − contraction − churned

Tracking the types separately shows where growth comes from. Two companies can both add $20,000 net new MRR; one with healthy expansion and little churn, the other replacing heavy churn with new sales. Only the first one has a growth engine. See expansion revenue and upselling.

From MRR to retention metrics

The MRR movements of existing customers give you the two retention metrics boards look at:

GRR = (starting MRR − contraction − churned) / starting MRR

NRR = (starting MRR + expansion − contraction − churned) / starting MRR

Both are calculated on the customers you had at the start of the period, so new MRR is left out. In SaaS Capital's 2025 survey of more than 1,000 private B2B SaaS companies, median GRR was about 90% to 91% for most contract sizes and median NRR between 98% and 106% (SaaS Capital, 2025). See our guides to NRR and GRR.

What MRR does not tell you

Where the revenue sits. In our study of 44,000 SaaS users, the top 10% of customers held 58% of MRR on average. A stable total can hide one large account about to leave.
What happens next. MRR shows the result of decisions customers already made. Usage, support and relationship signals show the decisions they are about to make. See churn prediction.
Whether customers get value. A customer on an annual contract keeps paying for months after they stop using the product.

Common MRR mistakes

Counting annual contracts as one big month instead of dividing by 12.
Including one-time fees, which makes MRR jump and then fall.
Booking churn at the end of the contract while the customer stopped using the product months earlier. Book it when the subscription ends, but watch usage long before.
Mixing contraction into churn, which hides downgrades, often the first step before a cancellation.
Not reconciling with billing. MRR should match what Stripe, Chargebee or your billing system says.

How Customerscore.io helps

Customerscore.io connects to billing (Stripe, Chargebee, ChartMogul) and brings MRR and ARR together with product usage, CRM, support and conversation history in one record per account. You see NRR broken down by cohort and the revenue behind every account, and each account gets a Churn Risk Score and an Upsell Score from 1 to 5, refreshed daily, with the reasons behind them, so you know which MRR is at risk and which is ready to grow. Most teams are live in 1 to 3 weeks.

To see how it works, book a demo.

FAQ

What is MRR in SaaS?

Monthly recurring revenue: the predictable monthly revenue from all active subscriptions, excluding one-time fees.

How do you calculate ARR from MRR?

ARR = MRR × 12. Businesses on annual contracts often calculate it directly as the sum of the annual contract value of all active subscriptions.

Should one-time fees be included in MRR?

No. Setup, implementation and services fees are not recurring, so they are left out of MRR and ARR.

What is the difference between churned MRR and contraction MRR?

Churned MRR is lost when a customer cancels. Contraction MRR is lost when a customer stays but pays less, for example after a downgrade or fewer seats.

What is net new MRR?

New MRR plus expansion and reactivation, minus contraction and churned MRR. It shows how much recurring revenue the business added in the period.

Glossary