Finance

SaaS Metrics 101: MRR, ARR, Churn, and Net Revenue Retention

Every SaaS founder eventually walks into an investor meeting and gets asked about a metric they don’t fully understand. This is the cheat sheet — formulas, benchmarks, and the calculation gotchas that derail valuations.

MRR (Monthly Recurring Revenue)

MRR = Sum of monthly subscription value across all active customers. Exclude one-time fees, professional services, and overages. Annual contracts get divided by 12.

Run yours in our MRR Calculator.

ARR (Annual Recurring Revenue)

ARR = MRR × 12. The number investors and boards talk in. ARR ignores seasonality, so always pair it with quarter-over-quarter growth.

The Four Movements That Change MRR

• New MRR — from new customers
• Expansion MRR — upsells, seats added, plan upgrades
• Contraction MRR — downgrades, seat reductions
• Churned MRR — full cancellations

Net New MRR = New + Expansion − Contraction − Churned.

Churn: Gross vs Net

Gross MRR Churn (%) = Churned MRR ÷ MRR at start of period. Pure loss, ignores expansion.

Net MRR Churn (%) = (Churned + Contraction − Expansion) ÷ MRR at start of period. Can be negative when expansion exceeds losses — the holy grail.

Calculate both with our Churn Rate Calculator.

Net Revenue Retention (NRR)

NRR (%) = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100.

Best-in-class SaaS clears 120% NRR — meaning existing customers grow 20%+ each year even if you stop new sales.

2026 US SaaS Benchmarks

• SMB SaaS gross churn: 3–5% monthly (35–45% annually) — high
• Mid-market SaaS gross churn: 1–2% monthly
• Enterprise SaaS gross churn: <1% monthly (5–7% annually)
• NRR (good): 105–115%
• NRR (great): 120%+
• Rule of 40: Growth rate + profit margin ≥ 40%

Worked Example

Start of month MRR: $100,000. New: +$8,000. Expansion: +$5,000. Contraction: −$1,500. Churn: −$3,500.

• Net New MRR: 8,000 + 5,000 − 1,500 − 3,500 = $8,000
• Gross Churn: 3,500 ÷ 100,000 = 3.5%
• Net Churn: (3,500 + 1,500 − 5,000) ÷ 100,000 = 0% (expansion just covers losses)
• End MRR: $108,000. NRR: (100,000 − 3,500 − 1,500 + 5,000) ÷ 100,000 = 100%

FAQs

Should I include trial users in MRR? No — only paying customers.

Annual contract billed upfront — is it MRR? Recognize it as MRR (contract / 12) for the dashboard, but track cash separately.

What’s the most important single metric? NRR. It captures retention, expansion, and pricing power in one number.