MRR / ARR

Monthly and annual recurring revenue, plus the two ratios that tell you whether the headline number is real growth or a hamster wheel.

When to use this

Monthly business reviews. Board updates. Anytime someone reports a Net New MRR number -- that single number tells you almost nothing without NRR and Quick Ratio next to it.

When NOT to use this

Non-recurring businesses (one-time purchases, project-based services, transactional fees). Pre-revenue products. The math assumes recurring contracts; force it onto the wrong model and you'll get numbers that don't mean anything.

Inputs

Starting MRR: Total MRR at the start of the period.
New MRR: MRR from new logos in the period.
Expansion MRR: MRR added by existing customers upgrading, adding seats, or buying more.
Contraction MRR: MRR lost from existing customers downgrading or removing seats. Different from churn.
Churned MRR: MRR lost from customers who left entirely in the period.

The math

MRR             = sum of monthly recurring revenue across all customers
Net New MRR     = new + expansion - contraction - churned
NRR             = (starting_MRR + expansion - churn - contraction) / starting_MRR
Quick Ratio     = (new_MRR + expansion_MRR) / (churned_MRR + contraction_MRR)

NRR above 100% means existing customers are paying you more this period than last, before counting any new ones. NRR is the cleanest single test of whether your product gets more valuable as customers stay. Quick Ratio above 4 means you're adding revenue at least 4x as fast as you're losing it -- that's healthy growth. Below 1 means you're shrinking and you should stop spending on acquisition until you fix the leak.

A worked example

A SaaS starts Q1 with $500k MRR.

Component	Amount
New MRR	+$80k
Expansion MRR	+$30k
Churned MRR	-$15k
Contraction MRR	-$5k

Net New MRR  = $80k + $30k - $15k - $5k            = $90k
Ending MRR   = $500k + $90k                        = $590k
NRR          = ($500k + $30k - $15k - $5k) / $500k = 102%
Quick Ratio  = ($80k + $30k) / ($15k + $5k)        = 5.5

102% NRR and a 5.5 Quick Ratio. The growth is real. Existing customers are net-expanding, and new acquisition is dominating losses by more than 5x.

Now imagine the same $90k Net New MRR with these components: new $130k, expansion $0, churned $30k, contraction $10k.

NRR         = ($500k + $0 - $30k - $10k) / $500k = 92%
Quick Ratio = ($130k + $0) / ($30k + $10k)       = 3.25

Same headline. Completely different business. NRR under 100% means the customer base is leaking. Without aggressive new acquisition, the business shrinks. That's not growth -- that's a hamster wheel.

How pmtoolkit does it differently

We surface NRR and Quick Ratio next to the headline MRR number, always. A $90k month with a 5.5 Quick Ratio is growth. A $90k month with a 1.5 Quick Ratio is the same number masking a leaky bucket. Reporting only the headline is how companies convince their board they're winning while the underlying motion is breaking.

We also flag the gap between booked ARR (sum of all active contracts annualized) and revenue ARR (current MRR x 12). They diverge whenever you have churn, and most dashboards conflate them. The conflation is roughly always rounded up.

Common mistakes

Reporting ARR by multiplying current MRR by 12. Ignores all the churn that will hit before the year is out. Real ARR is lower than this number, always.
Confusing booked ARR with revenue ARR. Booked is the contract value. Revenue is what you'll actually collect. Use revenue ARR for board math.
Ignoring contraction. Downgrades are silent killers. They don't show up as churn, but they shrink revenue just as effectively. A business with 0% logo churn and 10% contraction is shrinking.
Treating one-time fees as MRR. Setup fees, implementation charges, professional services -- none of these recur. Including them inflates MRR and ruins the comparability of every downstream metric.