MRR, ARR and the MRR bridge
Monthly recurring revenue (MRR) is what your subscriptions bring in each month, without one-time fees. A customer on an annual plan counts with one twelfth of the yearly price. Annual recurring revenue (ARR) is the same run rate for a year. David Skok splits the change in recurring revenue into new revenue from new customers, expansion from existing customers who upgrade, and revenue lost from customers who cancel. This calculator adds a fourth part, contraction, for customers who stay but pay less.
ARR = End MRR × 12
In the example, a month starts at $50,000 of MRR. New customers add $6,000, upgrades add $3,000, downgrades take away $800 and cancellations $1,700. Net new MRR is $6,500, a growth of 13% on the starting MRR, so the month ends at $56,500 of MRR, or $678,000 of ARR.
Churn and retention
Churn can be counted in customers or in revenue, and the two often tell different stories. Skok recommends tracking both: if small customers leave and large ones stay, customer churn looks bad while revenue churn looks fine.
| Metric | Formula | Example |
|---|---|---|
| Customer churn | Customers lost ÷ customers at the start | 15 ÷ 500 = 3% |
| Gross revenue churn | (Contraction + Churned) ÷ Start MRR | 2,500 ÷ 50,000 = 5% |
| Net revenue churn | (Contraction + Churned − Expansion) ÷ Start MRR | -500 ÷ 50,000 = −1% |
| Net revenue retention (NRR) | (Start MRR + Expansion − Contraction − Churned) ÷ Start MRR | 101% |
| Gross revenue retention (GRR) | (Start MRR − Contraction − Churned) ÷ Start MRR | 95% |
Net revenue churn below zero is called negative churn: expansion from the customers you keep is larger than what you lose. Skok calls getting to negative churn the ultimate solution to the churn problem. In the example, net revenue churn is −1% and NRR is 101%, so the customers from the start of the month pay a little more at the end of it, before any new customer is counted. GRR leaves expansion out and can never pass 100%. NRR is GRR plus expansion as a share of starting MRR.
New MRR is not part of any churn or retention rate. All of them divide by the starting MRR, so they measure only the customers you already had.
Monthly vs annual churn
A monthly churn rate does not become an annual one by multiplying it by 12. Each month’s churn applies to the customers still left, so the rates compound:
| Monthly churn | Annual churn, compounded | Monthly × 12 |
|---|---|---|
| 0.5% | 5.8% | 6% |
| 1% | 11.4% | 12% |
| 2% | 21.5% | 24% |
| 3% | 30.6% | 36% |
| 5% | 46% | 60% |
| 8% | 63.2% | 96% |
| 10% | 71.8% | 120% |
The other way round, an annual churn of 5% is 0.43%, 10% is 0.87%, 20% is 1.84% a month. Choose Quarter or Year in the calculator and it converts your period rates the same way: the customer churn of a quarter becomes a monthly rate with 1 − (1 − q)1/3, which is what customer lifetime and LTV need. When you compare two churn figures, check whether each one is a monthly rate, a compounded annual rate or a monthly rate times 12.
How companies report net retention
Some public software companies publish a net retention rate in their annual reports, and the definitions are close but not identical. Jamf’s 2022 annual report, for example, takes the ARR of all customers from 12 months earlier, then the current ARR of that same group, including expansion and net of contraction and attrition, with new customers excluded, and divides the two. Amplitude uses the same cohort method but also leaves overage charges out of current ARR, and it reports a trailing 12-month average next to it.
This calculator works from one period’s MRR movements with the starting MRR as the base. That matches the cohort method when the expansion, contraction and churn you enter come only from customers you had at the start. If a customer who signed up during the period has already upgraded, leave that upgrade out of expansion for a like-for-like NRR. To get a yearly NRR, choose Year and enter the movements of 12 months.
ARPA, customer lifetime and LTV
Lifetime = 1 ÷ Monthly customer churn
Average revenue per account (ARPA) is the MRR per paying customer. The example ends the month with 545 customers (500 + 60 − 15) and $56,500 of MRR, an ARPA of $103.67. With 3% monthly customer churn, the average customer stays 1 ÷ 0.03 = 33.3 months; Skok uses the same example, 3% monthly churn and a lifetime of 33 months. At an 80% gross margin, LTV = $103.67 × 0.8 ÷ 0.03 = $2,764.53.
Skok stresses two details: use gross margin, not revenue, because only the gross profit pays back what a customer cost to win; and use a monthly churn rate with a monthly ARPA. The simple formula also assumes ARPA and churn stay constant. When customers grow their spending over time, Skok notes that a more complex formula is needed. When churn is close to zero, 1 ÷ churn becomes very large, so treat an LTV based on one quiet month with care, and use a quarter or a year of data for a steadier rate. For LTV from order value and purchase frequency, use the customer lifetime value calculator.
LTV to CAC and CAC payback
With a customer acquisition cost of $1,200, the example has an LTV to CAC ratio of $2,764.53 ÷ $1,200 = 2.30:1, and a new customer earns back their CAC in $1,200 ÷ ($103.67 × 0.8) = 14.5 months of gross profit. Below 1:1 a customer never pays back what they cost. This page shows the formulas and leaves out “good” target values on purpose: published targets mix company sizes, contract types and the different definitions above. For a fully loaded CAC from your sales and marketing costs, use the CAC calculator.
Common mistakes
- Mixing periods. Customer counts from one month and MRR movements from another give random rates. Use the same start and end dates for all inputs.
- Counting one-time revenue as MRR. Setup fees, services and usage spikes are not recurring. Leave them out, or the next month looks like churn.
- Counting reactivations as new. A customer who left and came back did not cost a full acquisition. Keep reactivations apart from new customers, so growth and CAC stay clean.
- Multiplying monthly churn by 12. It overstates annual churn. Use the compounded formula above.
- Reading LTV as cash. LTV is a model of the future based on today’s churn and ARPA. If churn rises or prices change, it changes too.
How to use the SaaS metrics calculator
- 1Choose the period, a month, a quarter or a year, and your currency.
- 2Enter the MRR at the start of the period, then the new, expansion, contraction and churned MRR during it.
- 3Add customers at the start, new customers and customers lost for customer churn, ARPA, lifetime and LTV.
- 4Add your gross margin and CAC for LTV, LTV to CAC and the payback period, then copy the result or a link to it.
Sources
- SaaS Metrics 2.0: A Guide to Measuring and Improving What Matters, David Skok, For Entrepreneurs. New, expansion and churned ARR or MRR, customer and revenue churn, negative churn.
- SaaS Metrics 2.0: Detailed Definitions, David Skok, For Entrepreneurs. Customer lifetime as 1 ÷ churn, LTV with gross margin, monthly churn with monthly ARPA.
- SaaS Metrics: A Guide to Measuring and Improving What Matters, David Skok, For Entrepreneurs. Average customer lifetime as 1 ÷ churn rate.
- Jamf Holding Corp., Form 10-K for 2022, U.S. Securities and Exchange Commission. Definition of the dollar-based net retention rate.
- Amplitude, Inc., Form 10-K for 2024, U.S. Securities and Exchange Commission. Definition of the net dollar retention rate, without overage charges, and its trailing 12-month average.
Frequently asked questions
How do you calculate net revenue retention (NRR)?
Take the recurring revenue you had at the start of a period, add expansion from those customers, subtract contraction and churned revenue, and divide by the starting revenue. With $50,000 of starting MRR, $3,000 of expansion, $800 of contraction and $1,700 of churn, NRR = (50,000 + 3,000 − 800 − 1,700) ÷ 50,000 = 101%. Revenue from new customers is left out.
What is the difference between NRR and GRR?
Net revenue retention counts expansion from existing customers, so it can go above 100%. Gross revenue retention leaves expansion out and only subtracts contraction and churn, so it can never be above 100%. GRR shows how much revenue you keep; NRR shows whether the customers you keep grow enough to make up for the ones you lose.
How do I convert monthly churn to annual churn?
Compound it instead of multiplying by 12: annual churn = 1 − (1 − monthly churn)^12. A 3% monthly churn is 1 − 0.97^12 = 30.6% a year, not 36%, because each month’s churn applies to fewer remaining customers. To go the other way, monthly churn = 1 − (1 − annual churn)^(1/12).
What is the difference between customer churn and revenue churn?
Customer churn counts accounts: customers lost ÷ customers at the start. Revenue churn weighs each loss by its MRR: lost MRR ÷ starting MRR. If your small customers leave and the large ones stay, customer churn is high and revenue churn is low. Track both, because they answer different questions.
How do you calculate LTV for a SaaS business?
A common simple formula is LTV = ARPA × gross margin ÷ churn rate, with ARPA and churn for the same period. $100 of monthly ARPA at an 80% gross margin and 2% monthly customer churn gives 100 × 0.8 ÷ 0.02 = $4,000. It assumes churn and ARPA stay constant, so it overstates LTV when churn is very low and misses growth from expansion.
What is negative churn?
Net revenue churn below zero: the expansion from existing customers is larger than the revenue lost to contraction and cancellations. The same thing shows as an NRR above 100%. Your revenue from the customers you started with grows even before you add a single new customer.
Is my data sent anywhere?
No. The calculation runs in your browser and nothing is stored or sent. If you copy a share link, your numbers are part of that link, so share it only where you want them seen.