Finance
SaaS Metrics 101: MRR, ARR, Churn, and Net Revenue Retention
SaaS businesses are judged on a handful of metrics that all describe the same thing from different angles: how much recurring revenue you have, how fast it grows, and how much of it you keep. Get the definitions right and board meetings, investor updates and your own planning all get easier.
This guide defines MRR, ARR, churn, gross revenue retention (GRR) and net revenue retention (NRR), with one running example so you can see how they connect.
The running example
A B2B scheduling tool has 400 paying customers with an average of $120 a month each. We will use it throughout.
MRR — monthly recurring revenue
MRR = sum of all active subscriptions, normalized to a monthly amount.
400 × $120 = $48,000 MRR. Annual plans count as one-twelfth of their yearly price each month. One-time setup fees, consulting and hardware do not count — they are not recurring. Try it with the MRR calculator.
The most useful view of MRR is not the total but its movements each month:
- New MRR — from new customers
- Expansion MRR — upgrades, extra seats, add-ons
- Contraction MRR — downgrades
- Churned MRR — cancellations
Ending MRR = starting MRR + new + expansion − contraction − churned. When growth slows, this breakdown tells you whether the problem is acquisition or retention.
ARR — annual recurring revenue
ARR = MRR × 12. Our example: $48,000 × 12 = $576,000 ARR.
ARR is a run-rate snapshot, not a forecast. It assumes today’s subscriptions continue for a year with no churn or growth. It is the headline number investors use to size a SaaS company. See the ARR calculator for what to include and exclude.
Churn — customers and revenue
Customer churn rate = customers lost in a period ÷ customers at the start of the period.
If 12 of the 400 customers cancel this month, monthly churn is 3%. That compounds to about 30.6% a year — not 36% — because each month’s losses come from a smaller base. The churn rate calculator does the conversion.
Revenue churn measures lost MRR instead of lost customers. If the 12 churned customers were mostly on cheap plans, revenue churn might be 2% while customer churn is 3%. Both matter: customer churn tells you about product fit; revenue churn tells you about financial impact.
Rough reference points: self-serve products for small businesses often see several percent monthly customer churn, while products sold to larger companies on annual contracts typically churn far less. Your own trend matters more than any benchmark.
GRR — gross revenue retention
GRR measures how much revenue from an existing group of customers you keep, counting losses but ignoring upsells. It can never exceed 100%.
GRR = (starting revenue − contraction − churned revenue) ÷ starting revenue
Say the customers who made up $576,000 of ARR a year ago downgraded by $20,000 and cancelled $60,000 over the year. GRR = (576,000 − 20,000 − 60,000) ÷ 576,000 ≈ 86%.
NRR — net revenue retention
NRR adds expansion revenue back in. It answers: if we acquired no new customers at all, would revenue grow or shrink?
NRR = (starting revenue + expansion − contraction − churned revenue) ÷ starting revenue
If that same cohort also expanded by $90,000, NRR = (576,000 + 90,000 − 20,000 − 60,000) ÷ 576,000 ≈ 102%. Above 100% means existing customers alone grow the business — upsells more than cover losses.
NRR well above 100% is one of the strongest signals in SaaS, common among companies with seat-based or usage-based pricing sold to growing businesses.
How the metrics fit together
| Metric | Question it answers | Example value |
|---|---|---|
| MRR | How much recurring revenue do we have this month? | $48,000 |
| ARR | What is our annual run-rate? | $576,000 |
| Customer churn | What share of customers leave each month? | 3% |
| GRR | How much existing revenue do we keep, before upsells? | 86% |
| NRR | Do existing customers grow or shrink revenue on their own? | 102% |
Common reporting mistakes
- Counting one-time fees in MRR, which makes growth look smoother than it is.
- Booking annual prepayments as a single month of MRR.
- Multiplying monthly churn by 12 to get annual churn.
- Calculating NRR on all customers including new ones. NRR must track a fixed starting cohort.
- Changing definitions between reports. Write your definitions down and keep them.
What to do with these numbers
- Track MRR movements monthly to see whether growth comes from new customers or existing ones.
- Watch churn by plan and by sign-up month (cohort) to find where customers leave.
- Use churn and margin to calculate customer lifetime value with the LTV calculator, and compare it with acquisition cost.
- Report ARR, growth rate, GRR and NRR in investor updates — they are the numbers investors will ask for.