MRR / ARR

Track recurring revenue and the additions and losses behind its growth.

When to use this

Use it for monthly business reviews and board updates. Read net new MRR alongside the components that produced it.

Limits

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.
Reactivation MRR: MRR from returning customers who previously churned.
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
ARR             = MRR x 12
Net New MRR     = new + expansion + reactivation - contraction - churned
NRR             = (starting_MRR + expansion - churn - contraction) / starting_MRR
Quick Ratio     = (new_MRR + expansion_MRR + reactivation_MRR) / (churned_MRR + contraction_MRR)

Multiply NRR by 100 to express it as a percentage. Above 100% means revenue from the starting customer group grew after expansion and losses. Quick Ratio of 4 means additions are four times losses; below 1 means losses exceed additions. Neither ratio establishes profitability. Quick Ratio is undefined when losses are zero.

A worked example

A SaaS starts Q1 with $500k MRR. Assume reactivation is zero in both examples.

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

NRR is 102%: existing customers expanded in total. New and expansion MRR together are 5.5 times losses.

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

The same $90k net increase now depends on new customers offsetting losses from the starting group. Review retention and acquisition costs before deciding how to fund further growth.

In PM Toolkit

The calculator shows revenue components, Quick Ratio, and NRR when beginning-period data is supplied. Its projections model what would happen if the selected assumptions held; they are not observed future revenue.

Common mistakes

Treating ARR as a forecast. ARR is current MRR x 12, not a promise of next year’s revenue or collections.
Mixing bookings and recurring revenue. Contract bookings, recognized revenue, cash collections, and ARR answer different questions.
Ignoring contraction. Downgrades reduce recurring revenue even when no customer leaves.
Including one-time fees. Setup charges and one-time services do not belong in MRR.