Five steps to calculate monthly and annual recurring revenue. Formulas, examples, and tips for SaaS product managers.
Last updated: April 2026
Start by listing every active subscription you have on the books at the end of the month. MRR is the contracted, recurring portion of revenue you can count on next month if no one cancels and no one signs up.
Formula
Committed MRR = sum of all active monthly subscription amountsPro tip: Customers in the middle of a free trial don't add to MRR. Only count revenue from the day they start paying.
Annual deals show up as a lump sum in your bank account, but for MRR you spread that revenue across the contract length. The standard convention is to divide total contract value by the number of months in the term.
Formula
Normalized MRR per contract = Total Contract Value / Contract Length in MonthsPro tip: Use the same normalization for quarterly and semi-annual plans. Consistency matters more than the exact billing cadence.
New MRR is revenue from customers who weren't paying you last month. Expansion MRR is incremental revenue from existing customers who upgraded, added seats, or moved to a higher tier.
Formula
New + Expansion MRR = sum of net adds from new logos and existing-customer upgradesPro tip: Expansion is often the cheapest growth lever you have. Track it separately so you can see whether your product is delivering more value over time.
Not every change adds revenue. Customers downgrade, drop seats, or cancel. Both downgrades (contraction) and cancellations (churn) reduce MRR for next month.
Formula
Net New MRR = New + Expansion - Contraction - ChurnPro tip: If churn MRR is consistently larger than expansion MRR, you have a retention problem masking as a growth problem. Fix the leaky bucket before pouring more in.
ARR is the annual view of your recurring revenue. It assumes your current MRR run-rate continues for 12 months with no further changes.
Formula
ARR = MRR x 12Pro tip: Don't confuse ARR with revenue you've already booked. ARR is forward-looking. Recognized revenue is what you've already earned and reported.
Skip the manual math. Use our free MRR/ARR calculator with built-in handling for annual contracts, expansion, and churn.
Open Free MRR/ARR CalculatorMRR is the recurring portion of contracted revenue normalized to a monthly amount. Revenue is what you've actually recognized in your accounting period. A customer who pays $12,000 upfront for a year contributes $12,000 to cash but only $1,000 to MRR each month for the next 12 months.
Free trials don't count until they convert. The day a trial converts to a paid plan, that customer's normalized monthly amount enters new MRR. If a trial expires without converting, nothing changes in MRR.
No. MRR is for recurring revenue only. One-time fees, implementation charges, and professional services revenue go into a separate line item. Mixing them inflates MRR and hides churn signals.
Report MRR at the end of every month and reconcile against billing system exports. For fast-growing teams, also track a daily MRR snapshot so you can spot anomalies in time to fix them.
Only if your customer base is stable and there are no pending plan changes. Committed MRR (also called CMRR) accounts for known future changes such as scheduled upgrades or contracted expansions. ARR / 12 is a lagging snapshot of your current run rate.