MRR Lab

ARR Calculator

Calculate and forecast your Annual Recurring Revenue (ARR)

On average, what is your MRR for every new customer?

$

How many customers did you have at the beginning of last month?

How many new customers do you gain per month on average?

How many customers do you lose per month on average?

What is ARR?

Annual Recurring Revenue (ARR) is often used to value SaaS businesses and measure their health. It measures the amount of recurring revenue on an annual basis. It can be calculated by multiplying your Monthly Recurring Revenue (MRR) by 12.

ARR = Total MRR × 12 Total MRR = Average MRR per customer × Number of customers

For example:

  • If your average MRR per customer is $100 and you have 1000 customers:
    • Total MRR = $100 × 1000 = $100,000
    • ARR = $100,000 × 12 = $1,200,000
  • If your average MRR per customer is $500 and you have 1000 customers:
    • Total MRR = $500 × 1000 = $500,000
    • ARR = $500,000 × 12 = $6,000,000

Why Track ARR?

ARR is important for several reasons:

  • Valuations: SaaS companies are often valued as a multiple of ARR
  • Annual Planning: Makes budgeting and resource allocation easier
  • Growth Tracking: Can be used to measure annual growth
  • Investor Communication: Standard metric for reporting to investors
  • Market Comparison: Enables comparison with other SaaS companies for benchmarking

Understanding ARR Components

ARR changes are driven by several factors:

  1. New ARR: Revenue from new customers

    • Example: 50 new customers at $100 MRR per customer = $60,000 new ARR per year

  2. Churned ARR: Lost revenue from cancelled subscriptions

    • Example: Losing 20 customers at $100 MRR each = $24,000 churned ARR per year

  3. Expansion ARR: Additional revenue from existing customers

    • Plan upgrades (e.g., customer increases from $100 to $150 MRR)
    • Additional seats/licenses
    • Add-on services (but only if it is a recurring charge)

  4. Contraction ARR: Reduced revenue from downgrades

    • Plan downgrades (e.g., customer decreases from $150 to $100 MRR)
    • Reduced seats/licenses
    • Removed services (but only if they were providing recurring revenue)

How to use this calculator

  1. Enter your Average MRR per customer

    • This is the average monthly subscription price per customer
    • Example: If your paid plan is $100 per month per customer

  2. Enter your Number of customers

    • How many customers did you have at the beginning of last month?
    • Example: 1000 customers

  3. Enter your Customers gained per month

    • How many new customers do you gain per month on average?
    • Example: 50 new customers per month

  4. Enter your Customers lost per month

    • How many customers do you lose per month on average?
    • Example: 20 customers churning per month

The calculator will automatically:

  • Calculate your total MRR (Average MRR per customer × Number of customers)
  • Convert total MRR to ARR (Total MRR × 12)
  • Show ARR growth trends based on customer gains and losses
  • Project your ARR over the next 12 months

For example, with the inputs above:

  • Average MRR per customer: $100
  • Number of customers: 1000
  • Total current MRR: $100 × 1000 = $100,000
  • Current ARR: $100,000 × 12 = $1,200,000
  • Monthly customer growth: 50 new customers ($5,000 new MRR)
  • Monthly customer churn: 20 customers ($2,000 churned MRR)

Common ARR Calculation Mistakes to Avoid

  1. Including Non-Recurring Revenue

    • Setup fees
    • Professional services
    • One-time charges

  2. Double Counting Annual Subscriptions

    • Annual subscriptions should be divided by 12 to get MRR per customer
    • Example: $1,200 annual plan = $100 MRR per customer

  3. Mixing Different Currencies

    • Standardize all calculations to one currency
    • Use consistent exchange rates

  4. Including Future Contracts

    • Only count active subscriptions
    • Exclude signed but not yet started contracts

Related Metrics

  • Monthly Recurring Revenue (MRR): The monthly equivalent of ARR
  • Net Revenue Retention (NRR): Measures revenue retention including expansions
  • Customer Churn Rate: Rate at which customers cancel subscriptions
  • Revenue Churn Rate: Rate at which recurring revenue is lost
  • Expansion Revenue: Additional revenue from existing customers

Industry Benchmarks

Typical ARR metrics for SaaS companies:

  • Growth Rate: 40-100% year-over-year (varies by stage)
  • Churn Rate: 5-7% annually for enterprise, 10-15% for SMB
  • Net Revenue Retention: > 100% indicates negative revenue churn
  • Expansion Revenue: 20-30% of ARR from existing customers

Use this calculator to track these metrics for your business and compare against industry standards.